Prospectus - Trans

Transcription

Prospectus - Trans

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th
11 Floor, The PHINMA Plaza, 39 Plaza Drive
Rockwell Center, Makati City 1210
Telephone No.(+632) 870+0100; Fax No. (+632) 870+0433
Corporate Website: http://www.transasia+petroleum.com
This prospectus relates to the common shares of the capital stock (“Shares”) of Trans+Asia Petroleum
Corporation (“TA Petroleum”, “TAPET” the “Registrant”, “Issuer” or “Company”), a corporation organized
under Philippine law and incorporated on 28 September 1994, in connection with (a) the distribution by
Trans+Asia Oil and Energy Development Corporation (“TA Oil”) of 123,161,310 Shares of the Company
as property dividends(“Dividend Distribution”) to all stockholders of record of TA Oil as of 5 August 2013,
which represent approximately 49% of the issued and outstanding Shares (“Dividend Distribution”), and
(b) the registration with the Securities and Exchange Commission (“SEC”), and the listing by way of
introduction of the Company and its 250,000,000 Shares on the Main Board of The Philippine Stock
Exchange, Inc.(PSE) representing 100% of the issued and outstanding Shares of the Company(“Listing”).
As of the date of this Prospectus, the Issuer has an authorized capital stock of 1,000,000,000 Shares,
each with a par value of P 1.00, and its issued and outstanding share capital consists of 250,000,000
Shares.
TA Oil, a Philippine corporation listed on the PSE, is the parent company of the Issuer. At the time of
declaration and prior to the Dividend Distribution, TA Oil was the legal or beneficial owner of 100% of the
Issuer’s outstanding Shares. On 22 July 2013, the Board of Directors of TA Oil approved the dividend
declaration, which resulted in the distribution to TA Oil shareholders of record as of 5 August 2013 of 2.55
Shares for every 100 shares in TA Oil provided that no fractional shares shall result and any resulting
dividend with fractional shares shall be rounded down to the nearest whole number, and cash in the
amount of P0.013 per share to all stockholders of record of TA Oil as of 5 August 2013, subject to the
approval by the SEC and other regulatory agencies. U.S based stockholders of TA Oil shall receive cash
in the amount of P0.0385 per TA Oil share, in lieu of TA Petroleum shares, and the cash dividend of
P0.013 per share, in view of the requirements under U.S. securities laws and regulations. A Registration
Statement covering 250,000,000 Shares was filed by the Company on 22 November 2013. The Shares
subject of the Registration Statement are covered by (a) the application for the approval of the Property
Dividend, which was filed by TA Oil on 17 September 2013 and approved by the SEC on 7 October 2013,
and (b) the application for listing by way of introduction, which was filed by TA Petroleum with the PSE on
05 December 2013, and approved by the PSE on 11 June 2014. In an Order dated 14 August 2014, the
SEC declared effective the Registration Statement of TA Petroleum.
The Company has decided to apply for listing by way of introduction as a cost+effective means to gain
access to the capital market, even without an immediate need to raise funds, and thereby enable TA
Petroleum to time the conduct of future fund raising activities when market conditions are attractive. It
would also enable the company to establish a market+based price for its shares, as well as provide
liquidity and tax advantages for both present and future shareholders.
The Dividend Distribution will increase the number of TA Petroleum’s stockholders from twelve, including
eleven individuals holding only one Share each, to 3,275 stockholders (excluding TA Oil), 1,734 of whom
will hold at least 1,000 Shares. It will also enable TA Petroleum to apply for Listing pursuant to Section
1(b), Part H, Article III of the Amended Rules on Listing by Way of Introduction of the PSE which allow
listing based on distribution of shares by way of property dividend by a listed issuer to its shareholders.
1
TA Petroleum and its stockholders will not be offering Shares to the public for subscription or sale in
connection with the Dividend Distribution or Listing. The Company believes that the price of the Shares is
of such amount, and the Shares would be so widely held, that their adequate marketability when listed
can be assumed. Consequently, there will be no change in the total number of issued and outstanding
common shares as a result of the Dividend Distribution and Listing. There will be no underwriter for, and
no proceeds from, the Dividend Distribution and Listing. Nonetheless, the indicative reference opening
price (“Initial Listing Price”) of the Shares upon Listing shall be P4.60 per share. Such price is based on
the Updated Valuation Report and Fairness Opinion issued by PricewaterhouseCoopers on 8 August
2014, which is annexed to this Prospectus. (Please refer to Determination of Initial Listing Price on page
24 of the Prospectus)
All of the Shares are unclassified and have identical rights and privileges. Each holder of the Shares will
be entitled to such dividends as may be declared by the Company’s Board of Directors (the “Board”),
provided that any stock dividend declaration requires the approval of shareholders holding at least two+
thirds of the Company’s total outstanding capital stock. Dividends may be declared only from the
Company’s unrestricted retained earnings. Currently, the Company does not have a dividend policy;
however, the Board may decide to declare cash dividends in the future. (Please refer to Dividends and
Dividend Policy on page 77 of the Prospectus.)
The Company is subject to foreign ownership restrictions under the Philippine Constitution which limits
the right to participate in the exploration for and/or utilization of natural resources to Filipino citizens and
to Corporations at least 60 percentum of whose capital is owned by Filipino citizens. (Please see
extended discussion at page 40 of this Prospectus.)
TA Petroleum, having made all reasonable inquiries, confirms that (a) this Prospectus contains all
information with respect to the Company, which is material in the context of the Dividend Distribution and
Listing; (b) the statements contained in it relating to the Company are in every material respect true and
accurate and not misleading; (c) there are no other facts in relation to the Company or the Shares which
would make any statement in this Prospectus misleading in any material respect; and (d) reasonable
inquiries have been made by the Company to ascertain facts, information and statements in this
Prospectus. The Company accepts full responsibility for the accuracy of the information contained in this
Prospectus.
Information relating to entities other than the Company’s subsidiaries and affiliates in this Prospectus was
obtained from publicly available sources that are believed to be reliable but such information has not been
independently verified. TA Petroleum does not make any representation as to the accuracy of such
information regarding such entities.
References to TA Petroleum, the Company, the Registrant and the Issuer are references to Trans+Asia
Petroleum Corporation and its subsidiary as the context requires. However, for the avoidance of doubt,
please see the table in pages 46+47 of this Prospectus, which sets out the actual interest of the Company,
its affiliates and subsidiaries in the contracts held by them and the business described in this Prospectus.
Before making an investment decision, investors should carefully consider the risks associated with an
investment in the Common Shares. These risks include:
1
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Please refer to the section entitled “Risk Factors” beginning on page 17 of this Prospectus, which, while
not intended to be an exhaustive enumeration of all risks, must be considered in connection with a
purchase of the Offer Shares.
This Prospectus includes forward+looking statements and information that involve risks and uncertainties.
These statements involve known and unknown risks, uncertainties and other factors that may cause the
Company’s actual results, performance or achievements to be materially different from any future results,
performances or achievements expressed or implied by the forward+looking statements. Forward+looking
statements include, but are not limited to, statements about:
the performance of the oil and gas market in the Philippines;
the global economic environment and industry outlook generally;
the availability of and changes to bank loans and other forms of financing;
changes in political, economic, legal and social conditions in the Philippines;
changes in competitive conditions and the Company’s ability to compete under these conditions;
the Company’s ability to manage its growth and diversified businesses;
the performance of the obligations and commitments of the Company’s joint venture partners under
existing service contracts, operating contracts and future agreements; and
other factors beyond the Company’s control.
In some cases, one can identify forward+looking statements by terms such as “may,” “might,” “objective,”
“intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “predict,” “potential,” “plan,” or
the negative of these terms, and similar expressions intended to identify forward+looking statements.
3
These statements reflect the Company’s current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. Given these uncertainties, one should not place
undue reliance on these forward+looking statements. Many of these risks are discussed in greater detail
in this Prospectus under the heading “Risk Factors.” Also, these forward+looking statements represent
estimates and assumptions only as of the date of this Prospectus. Unless required under Philippine law,
the Company does not intend to update any of these forward+looking statements to reflect circumstances
or events that occur after the statement is made.
One should read this Prospectus and the documents referenced in this Prospectus and filed as exhibits to
the registration statement, of which this Prospectus is a part, completely and with the understanding that
actual future results may be materially different from what the Company expects. Forward+looking
statements contained herein are qualified by these cautionary statements.
This Prospectus includes estimates made by the Company and third parties of oil and gas reserves and
resources. Estimates of reserves and resources should be regarded only as estimates that may change
as additional technical and commercial information becomes available. Not only are such estimates
based on information which are currently available, but such estimates are also subject to the
uncertainties inherent in the application of judgmental factors in interpreting such information. The
quantities that might actually be recovered should they be discovered and developed may differ
significantly from the estimates presented herein.
As of the date of this Prospectus, the Company has conducted an internal review of the Operators’
estimates and deemed them reasonable. Consistent with industry practice on the treatment of contingent
resources, the estimates provided were not subjected to independent verification by third parties. As
estimates of reserves and resources change over time, the Company may have to adjust its business
plans and strategies accordingly. Any significant downward revision in the estimates of reserves and
resources may adversely affect the Company’s financial condition, future prospects and market value.
The distribution of this Prospectus in certain jurisdictions may be restricted by law. Persons who come
into possession of this Prospectus should inform themselves with and comply with any such restrictions.
The Company’s investor relations program covers its communications strategy to promote effective
communication with its stockholders, other stakeholders and the public in general.
Objectives
To provide investors and the general public with sufficient and timely access to
relevant information on the Company and apprise them of recent developments
to enable such investors and the public to make informed investment decisions.
To provide timely response to clarifications requested by existing or prospective
shareholders on disclosed information.
Principles
Accurate information, timely disclosure/ availability of information, relevance of
information, timely response to request for clarification on disclosed information.
Modes of
Communications
Information on Company including financial information and other disclosures
should available for download on the Company’s own website. Investors
should also be able to send electronic communication to investor relations
directly through the Company website. Company office address, telephone
trunkline, and fax number are also available on the Company website. Investor
Relations Officer name, telephone number, and email address are also
available on the Company website.
4
GLOSSARY OF TERMS ............................................................................................................................... 7
SUMMARY .................................................................................................................................................. 11
SUMMARY FINANCIAL INFORMATION.................................................................................................... 14
RISK FACTORS .......................................................................................................................................... 17
USE OF PROCEEDS .................................................................................................................................. 23
DETERMINATION OF INITIAL LISTING PRICE ........................................................................................ 24
DILUTION.................................................................................................................................................... 35
PLAN OF DISTRIBUTION .......................................................................................................................... 36
INTERESTS OF NAMED EXPERTS AND INDEPENDENT COUNSEL .................................................... 37
DIVIDEND DISTRIBUTION AND LISTING EXPENSES ............................................................................ 39
DESCRIPTION OF BUSINESS .................................................................................................................. 40
DESCRIPTION OF PROPERTIES ............................................................................................................. 68
LEGAL PROCEEDINGS ............................................................................................................................. 70
SECURITIES OF THE ISSUER AND SHARES TO BE HELD IN ESCROW ............................................. 71
DIVIDENDS AND DIVIDEND POLICY ....................................................................................................... 77
SELECTED FINANCIAL DATA ................................................................................................................... 78
MANAGEMENT’S DICUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ............................................................................................................................................. 81
MANAGEMENT AND CERTAIN SECURITY HOLDERS ........................................................................... 87
PRINCIPAL SHAREHOLDERS .................................................................................................................. 96
FINANCIAL INFORMATION PPPPPPPPPPPPPPPPPPPP..PPPPPPPPPPP. 100
PHILIPPINE TAXATION ........................................................................................................................... 101
PHILIPPINE STOCK MARKET ................................................................................................................. 103
ANNEXES ................................................................................................................................................. 111
A. FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORTS
B. UPDATED VALUATION REPORT AND UPDATED FAIRNESS OPINION ON THE INITIAL LISTING
PRICE DATED 8 AUGUST 2014
VALUATION REPORT AND FAIRNESS OPINION ON THE INITIAL LISTING PRICE DATED
18 NOVEMBER 2013
C. INDORSEMENT OF THE DEPARTMENT OF ENERGY
D. SOCIETY OF PETROLEUM ENGINEERS + PETROLEUM RESOURCES MANAGEMENT SYSTEM
DEFINITIONS AND GUIDELINES
E. VALUATION OF SERVICE CONTRACTS DATED 22 MARCH 2013
........................................................................................................................................................................
6
In this Prospectus, unless the context otherwise requires, the following terms shall have the meanings set
out below.
Acreage
+
an area explored for a particular resource. For petroleum, it may also be
called "concession", "lease" or “service contract area.”
Articles of
Incorporation
+
The Articles of Incorporation of the Company, as amended on 28 November
2012.
Bbl
+
a barrel, or a trading unit used in connection with the production of oil. One
barrel equals 42 US gallons or approximately 159 liters
bcf
+
billion cubic feet
Block
+
a petroleum contract area or a portion thereof categorized under a block
reference system established by the DOE. Older contract blocks may not
conform to the DOE reference system.
Board
+
the board of directors of the Company, Trans+Asia Petroleum Corporation.
Book Value per
Common Share
+
the result of dividing the total equity account of the Company by the total
number of Common Shares issued and outstanding
Carried Interest
+
A participating interest in a petroleum exploration or energy project that does
not share in the costs up to a certain agreed point (e.g., a carry up to the first
exploratory well), but shares in the costs attributable to such interest
thereafter
Corporation Code
+
Batas Pambansa Bilang 68, otherwise known as the Corporation Code of
the Philippines
Crude Oil
+
oil in its natural state before the same has been refined or otherwise treated.
It does not include oil produced through destructive distillation of coal,
bituminous shales or other stratified deposits, either in its national natural
state or after the extraction of water, and sand or other foreign substances
Exploration
+
geoscientific and technical studies and activities undertaken to establish the
presence of a natural resource
Farm+in
+
an agreement wherein one company agrees to drill wells or performs other
activities on another company's acreage in order to earn an interest in that
acreage
Farm+out
+
an agreement wherein a company agrees to assign interest in its acreage to
another company in exchange for the latter’s performance of certain
activities in that acreage.
Geophysical
+
Concerning geophysics, which is the study of the earth by quantitative
physical methods, especially by seismic reflection and refraction, gravity,
7
magnetic, electrical, electromagnetic, and radioactivity methods
GIIP
+
Gas Initially in Place
Hydrocarbons
+
complex chemical compounds containing carbon and hydrogen regardless
of whether they are in gaseous, liquid or solid state; are of prime economic
importance because they encompass the constituents of the major fossil
fuels (i.e., coal, petroleum, natural gas, etc.), plastics, paraffin, waxes,
solvents and oils
Lead
+
a geologic feature or structure which when subjected to additional technical
studies may develop into a Prospect
Listing By Way of
Introduction
+
an application for listing of securities that are already issued or securities
that will be issued upon listing, where no public offering will be undertaken
because the securities for which listing is sought would be of such an
amount and would be so widely held that their adequate marketability when
listed can be assumed, or when listing in an exchange or public offering is
mandated by law or by the Securities and Exchange Commission (“SEC”) or
other government agencies, in the exercise of their powers under the law in
accordance with the Amended Rules on Listing By Way of Introduction
dated 9 March 2011 of The Philippine Stock Exchange, Inc.
Mean Recoverable
+
average estimate of amount that may be recovered
mmbbls
+
million barrels
Natural Gas
+
gas obtained from boreholes and wells and consisting primarily of
hydrocarbons
Participating Interest
+
a generic term for equity in a petroleum contract
Philippine Peso, Peso
or P
+
the lawful currency of the Philippines
PFRS
+
the Philippine Financial Reporting Standards
Power station/plant
+
a facility for the generation of electric power
Prospect
+
a geologic feature or structure whose attributes are deemed favorable for
the accumulation of petroleum
PSA
+
Philippine Standards on Auditing
Royalty Interest
+
interest which does not share in costs, but derives benefits in the event of
success, usually pegged to a certain revenue item (e.g. a gross overriding
royalty is a percentage of the gross proceeds from petroleum production)
Service Contract or
SC
+
agreement entered into by the Government and a company which grants the
latter the exclusive right to undertake petroleum exploration, development
and production over a certain area. The company provides the necessary
services, financing and technology and fully assumes all exploration risk. In
the event of commercial production, the company gets a share of sales
proceeds as service fee, and is allowed to recover its investments
8
Seismic exploration
+
The search for commercially economic subsurface deposits of crude oil,
natural gas, and minerals by the recording, processing, and interpretation of
artificially induced shock waves in the earth
SRC
+
Republic Act No. 8799 or the Securities Regulation Code
STOOIP
+
Stock Tank Oil Originally in Place
Trading Day
+
any day on which trading is allowed in the PSE
USD or US$
+
United States dollar
Working Interest
+
an interest that fully participates in the costs and derives benefits
corresponding to such interest in the event of success
BIR
+
Bureau of Internal Revenue
CIPP
+
CIP II Power Corporation
DENR
+
the Philippine Department of Environment and Natural Resources
DOE
+
the Philippine Department of Energy
External Auditor;
Independent
Accountant; SGV
+
SyCip Gorres Velayo & Co.
Government
+
the Government of the Republic of the Philippines
Maybank ATRKE
+
Maybank ATR Kim Eng Capital Partners Inc., the financial adviser to Trans+
Asia Petroleum Corporation
One Subic; OSPGC
+
One Subic Power Generation Corporation
Oriental
+
Oriental Petroleum and Minerals Corporation
Palawan55
+
Palawan55 Exploration & Production Corporation, 69.35% owned by TA
Petroleum
PCD
+
Philippine Central Depository, Inc.
PDTC
+
the Philippine Depository and Trust Corporation, the central securities
depository of, among others, securities listed and traded on the PSE
PetroEnergy
+
PetroEnergy Resources Corporation
Philex Mining
+
the Philex Mining Corporation
Philex Petroleum
+
the Philex Petroleum Corporation
9
Philodrill
+
The Philodrill Corporation
PHN
+
PHINMA Corporation
PHINMA
+
the Philippine Investment Management Inc.
PHINMA Group
+
The group of companies comprised of PHINMA, its subsidiaries and affiliate
companies
PNOC
+
Philippine National Oil Company
PNOC + EC
+
PNOC Exploration Corporation
PSE
+
The Philippine Stock Exchange, Inc.
SCCP
+
Securities Clearing Corporation of the Philippines
SEC
+
the Philippine Securities and Exchange Commission
TA Gold
+
Trans+Asia Gold and Minerals Development Corporation
TA Oil
+
Trans+Asia Oil and Energy Development Corporation, parent company
TA Petroleum, the
Company
+
Trans+Asia Petroleum Corporation (formerly Trans+Asia (Karang Besar)
Petroleum Corporation)
TA Power
+
Trans+Asia Power Generation Corporation
TAREC
+
Trans+Asia Renewable Energy Corporation
TAWPC
+
Trans+Asia Wind Power Corporation
Transfer Agent
+
Stock Transfer Services Incorporated
10
The following summary is qualified in its entirety by more detailed information, including the Company’s
consolidated financial statements and notes relating thereto, beginning on page 40 of this Prospectus.
TA Petroleum is a Philippine corporation organized on 28 September 1994 as a wholly+owned subsidiary
of TA Oil. The Company’s Articles of Incorporation and By+laws were amended on 28 August 2012, to
focus its primary purpose to engaging in the business of oil and gas exploration, development, and
production and to change the name of the Company from “Trans+Asia (Karang Besar) Petroleum
Corporation” to “Trans+Asia Petroleum Corporation”.
The Company has interests in four (4) oil and gas service contracts (SC), namely: (a) a 6.82% gross
interest in SC 55 West Palawan (through its 69.35% share in its subsidiary, Palawan55 Exploration &
Production Corporation (Palawan55)), (b) 6.67% interest in SC 51 East Visayas, (c) 6.00% in SC 69
Camotes Sea, and (d) a 2.334% in SC 6 Block A and 14.063% in SC 6 Block B Northwest Palawan.
An independent estimate of reserves and resources of the petroleum and gas assets held by the
Company and its subsidiary are as follows:
Net Attributable
to Company
Classification
Source of Figure
379.5
8.857
mean
recoverable
13.02
1.831
STOOIP
3. SC 51
46
3.068
mean
recoverable
4. SC 69
503
30.18
STOOIP
Pitkin Petroleum (Technical
Committee Meeting) + Dec 2012
Raisama Farm+In Study Report + Apr
2011
OTTO Energy Disclosure + 25 July
2013 / AREX Energy Report + 2012
2013
1. SC 55
2452
167.2
STOOIP
2. SC 69
720
43.2
GIIP
ASSET
Gross 100%
OIL RESERVES (mmbbls)
1. SC 6A
(Octon)
2. SC 6B
(Bonita)
GAS RESERVES (bcf)
(NOTES: 1.
2.
3.
4.
5.
6.
BHP Billiton (Technical Committee
Meeting) + July 2013
2013
mmbbls + million barrels
bcf + billion cubic feet
STOOIP + Stock Tank Oil Originally in Place
GIIP + Gas Initially in Place
Companies use STOOIP and GIIP when data is insufficient to derive mean recoverable
Data for SC 69 indicate resource can be either oil or gas)
11
A more detailed discussion of the various SC and operating contracts held by the Company and its
subsidiary is set out in the section “Description of Business – Statement of Active Business Pursuits”.
The Philippine Department of Energy (“DOE”) awards petroleum contracts to technically and financially
capable companies on a competitive bidding basis. While there is competition in the acquisition of
exploration rights, the huge financial commitments associated therewith also provide opportunities for
partnership, especially between local and foreign companies. Under an SC, a substantial financial
incentive is given to consortia with at least 15% aggregate Filipino equity. Thus, many foreign firms invite
local exploration companies to join their venture to take advantage of said benefit and vice versa.
The Company leverages its key strengths which include: (a) its participating interest in SC 55, through its
69.35% equity in Palawan55, (b) its minority interests in a number of SCs which present opportunities to
and have attracted farm+in interest from other foreign oil companies, (c) its recognition as one of the
pioneers in the local petroleum industry, with the technical expertise of its staff recognized by its foreign
partners and the DOE, and (d) its strong principal shareholders, which make the Company an ideal joint
venture partner of foreign oil and gas companies in petroleum and gas SCs. The Company remains a
strong competitor in the local petroleum exploration and production industry.
The Company’s strategy for creating long+term value is to:(a) continue to create and pursue a spread of
upstream opportunities covering various risk+reward scenarios, success which would lead to a significant,
sustained contribution to the revenue stream of the Company; and (b) forge new partnerships and expand
existing alliances with foreign and local companies that share its investment strategy and who can
provide capital and technical expertise. By joining exploration consortia as a minority partner, the
Company reduces the inherent risks in the business while maintaining any potential from the projects and
increases its portfolio of petroleum and gas assets.
TA Petroleum has the right to actively participate in the exploration for and/or extraction of natural
resources through adequate control over the assets, or through adequate rights which give the applicant
company sufficient influence in decisions over the exploration for and/or extraction of natural
resources.(Please see discussion under Description of Business at page 40).
Before making an investment decision, investors should carefully consider the risks associated with an
investment in the Shares. These risks include:
1
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-5!/, "# ,#4 0"# ,0 $, / #5 8+ 0+ +- "*.,#2 *,2 /" 0"# ,0 / 0-# - ,#4 ,.. "3,/ $ "* +- "3- #*-# " " +- 8 - - .-#,/ ;-4
"*.- "# # -0! #5 -70/! 3- 5+ *,2 +,*.- +- 0"*.,#2: 5 "8 + ,#4
-7.,# "#
12
1
-/, #5 " +- + / .. ##2 ."/ 0,/ # , / 2 # +- + / .. #- *,2 ,43- -/2 ,$$-0 +- "*.,#2:
! #- !/ "$ ".- , "# ,#4 $ #,#0 ,/ 0"#4 "#
- "
,0 3 - # +- + / .. #- 0"!/4 4- , / ;- +- 0"!# 2 ,43- -/2 ,$$-0 #5
+- "*.,#2: ! #- -#3 "#*-#
1 "$ ,#2 4"8#5 ,4- # +- "3- - 5# 0 -4 , #5 "$ +- + / .. #- *,2 ,43- -/2
,$$-0 +- "*.,#2: ! #+- "00! -#0- "$ #, ! ,/ 0, , ".+- *,2 *, - ,//2 4 !. +- "*.,#2:
".- , "#
1
-/, -4 " +- +, +- *, 1- . 0- "$ -0! - 0,# ,#4 4"- $/!0 !, - +- +, - +,3- #" --#
.! / 0/2 ,4-4 ,#4 +- -/, 3- 3"/, / 2 ,#4 // <! 4 2 "$ +- + / .. #- -0! *, 1- *,2 !
,# ,//2 / * #3- " : , / 2 " -// +- +, - , , ! , /- . 0- "
, , *- +-2 4- ! ! - ,/- "$ +, - # +- .! / 0 *, 1- 0"!/4 ,43- -/2 ,$$-0 +- . -3, / #5
*, 1- . 0- "$ +- +, - ,#4 +, -+"/4- *,2 -7.- -#0- 4 /! "# # +- +"/4 #5
+- "*.,#2:
#3- *-#
!0 ! - *,2 *.-4- +- "*.,#2: , / 2 " .,2
4 3 4-#4
Please refer to the section entitled “Risk Factors” on page 17 of this Prospectus, which, while not
intended to be an exhaustive enumeration of all risks, must be considered in connection with an
investment in the Shares.
13
The selected consolidated financial information set forth in the following tables have been derived by the
Company from its audited interim consolidated financial statements as at 31 March 2014 and for the three
months ended 31 March 2014 and 2013 comprising the interim consolidated balance sheet as at
31 March 2014 and interim consolidated statements of income, statements of comprehensive income,
statements of changes in equity and statements of cash flows for the three months ended 31 March 2014
and 2013 and its audited consolidated financial statements as at and for the years ended
31 December 2013, 2012, and 2011 comprising consolidated balance sheets as at 31 December 2013,
2012 and 2011 and consolidated statements of income, statements of comprehensive income,
statements of changes in equity and statements of cash flows for the years then ended, which have been
audited by independent auditors, SyCip Gorres Velayo & Co. (“SGV”) in accordance with Philippine
Standards on Auditing (“PSA”). These financial data should be read together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements
and related notes included elsewhere in this Prospectus.
The information below is not necessarily indicative of the results of future operations and does not purport
to project the results of the Company’s operations or financial condition for any future period or date.
"# "/ 4, -4
#,#0 ,/
, -*-#
" +- + -*"# + -#4-4
, 0+ '%
&)%9
"
&)%'
+- 2-, -#4-4
-0-* - '%
&)%&
&)%%
Interest income
Costs and expenses
Other charges
Loss before income tax
Income tax
23,251
3,375,054
(207,194)
798,288
9,380,729
(4,739,255)
263,418
3,294,285
+
32
36,750
+
3,558,997
(320)
13,321,696
320
3,030,867
+
36,718
+
Net loss
' 66> (??
%' '&& )%(
' )') >(?
'( ?%>
3,541,851
16,826
' 66> (??
12,877,179
444,837
%' '&& )%(
3,005,090
25,777
' )') >(?
36,718
+
'( ?%>
0.0142
0.052
0.100
0.004
! , /- "@
Equity holders of the Parent
Company
Non+controlling interests
Basic/diluted loss per share*
* Restated to show effects of the reverse stock split in 2013.
14
"# "/ 4, -4
#,#0 ,/
, -*-#
,
, 0+
'%
&)%9
-0-* - '%
&)%'
&)%&
-
18,397,629
138,203,543
+
20,259
%6( (&% 9'%
21,029,901
138,411,121
+
3,033
%6A 999 )66
165,897,557
+
8,666,268
8,778
%?9 6?& ()'
7,993
+
+
+
? AA'
74,736,195
?9 ?'( %A6
74,736,195
?9 ?'( %A6
72,218,898
?& &%> >A>
+
-
&'% '6? (&(
&'9 %>) &6)
&9( ?A% 6)%
? AA'
1,493,753
% 9A' ?6'
757,700
?6? ?))
46,935
9( A'6
+
=
250,000,000
+
(22,713,584)
&&? &>( 9%(
2,577,457
229,863,873
250,000,000
+
(19,171,733)
&') >&> &(?
2,594,283
233,422,550
250,000,000
+
(6,294,554)
&9' ?)6 99(
3,039,120
246,744,566
10,000,000
(6,702,543)
(3,289,464)
? AA'
+
7,993
=
&'% '6? (&(
&'9 %>) &6)
&9( ?A% 6)%
? AA'
! -#
Cash and cash equivalents
Investments held for trading
Advances to a related party
Other receivables
" ,/ ! -#
"#0! -#
Deferred exploration costs
" ,/ "#0! -#
=
! -#
, / Accounts payable and
other current liabilities
" ,/
,
, / -
Capital stock
Subscription receivables
Deficit
&)%%
15
"# "/ 4, -4
#,#0 ,/
, -*-#
" +- + -*"# + -#4-4
, 0+ '%
&)%9
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Effect of exchange rate changes on cash
and cash equivalents
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents, beginning of
period
Cash and cash equivalents, end of period
"
+- 2-,
-#4-4
-0-* - '%
&)%'
&)%&
&)%%
(2,632,656)
+
+
(2,445,875)
(142,422,849)
+
(11,658,978)
(72,218,898)
249,767,440
(36,718)
+
36,251
384
1,068
+
+
(2,632,272)
(144,867,656)
165,889,564
(467)
21,029,901
%> 'A? (&A
165,897,557
&% )&A A)%
7,993
%(6 >A? 66?
8,460
? AA'
16
!
"
#
#
!
"
!
!
"
#
$
!
%
!
#
#&! &
'
#
:
There are uncertainties inherent in the business of petroleum exploration and development. It is
vulnerable to contingencies such as:
, /! - " 4 0"3- " / ,#4 5,
- "! 0-
+, 0,# - 4-3-/".-4 $" 0"**- 0 ,/ . "4!0 "#
The Company’s ability to sustain itself depends on the discovery of oil and gas resources that can be
developed for commercial production. There is no assurance that exploration activities of the Company
and the corporations in which it has invested (collectively with the Company, the “Group”) will result in the
discovery of oil or gas deposits because of the uncertainties in locating and estimating the size of
subsurface deposits of oil or gas despite advances in exploration technology. Even if a substantial oil or
gas deposit is discovered, there are other factors that may prevent or delay its commercial development,
such as drilling and production hazards; political, social and/or environmental issues; and insufficient
market demand and/or infrastructure, particularly for a natural gas development. If exploration and
development activities of the Group are not successful, the Company’s ability to generate future cash flow
and obtain additional financing to continue operations may be adversely affected.
The Company mitigates exploration and development risks mainly by investing in a portfolio of exploration
assets, working with partners and contractors with proven track records, and undertaking phased
exploration with exit options.
, /! - " $!#4 -7.-#4 ! - ,#4 #3- *-#
$" -7./" , "# ,#4 4-3-/".*-# ,0 3 -
The exploration and development of oil and gas resources are capital intensive. The Company’s ability to
fund such expenditures and investments depends on numerous factors, including the ability to generate
cash flow from the Group’s production, availability and terms of external financing, and the extent to
which work commitments can be adjusted under the relevant SCs and similar agreements. If the Group is
unable to obtain the required funding, the Group will have to adjust its business plans and strategies,
which may adversely affect the Company’s future prospects, market value and results of operations.
17
The Company mitigates the foregoing risks by sharing the costs and risks of exploration and development
with suitable joint venture partners and undertaking phased exploration with exit options. Where funding
is insufficient, the Company may adjust its business plans and strategies.
.- , #5
1
- !/ #5 # /"
-
Exploration and production of oil and gas are subject to various operating risks such as fires, explosion,
spills, gas leaks, collisions, mechanical failures, and natural disasters that may result in injuries, loss of
lives, suspension of operations, and damage to property and the environment. As a result, losses and
liabilities arising from the occurrence of any of these risks may have a material adverse effect on the
Company’s business and results of operations.
The Company addresses operating risks by ensuring that the consortium where it has participation
employs good oil field practices consistent with the international oil and gas industry standards.
The foregoing risk is also mitigated by insurance coverage; however, please note that insurance
coverage applies against some, but not all, potential losses and liabilities. The Company will assess the
acceptability of residual risks not covered by insurance policies, and if the Company deems that such
risks are not within the levels that the Company is willing to accept, the Company may decide to avoid the
risk by either terminating or forgoing the activity, project or investment.
,8
-5!/, "# ,#4 0"# #5-#0 - ,44 #5 " +- 0"
,#4 -$$"
"$ 4" #5 ! #-
The petroleum industry is highly regulated. In addition to complying with the laws and regulations for
doing business in the Philippines and in the other jurisdictions where the Group operates, the nature of
the Group’s business also subjects the Group to laws and regulations regulating the industry, as well as
those on environment, occupational health and safety standards. Despite efforts to comply with all such
laws and regulations, the Company's business may be exposed to significant liabilities and restrictions
due to accidents and unforeseen circumstances. Furthermore, such laws and regulations are subject to
changes which may result in delays or restrictions on exploration, development or production activities as
well as increased cost of compliance. There is no assurance that these costs will not have a material
adverse effect on the Company's business and results of operations.
The foregoing risk is mitigated by the Group’s respective policies, which are geared towards compliance
with laws and regulations, as well as with good industry practice relating to health, safety and
environment. Some of the risks and potential losses and liabilities arising therefrom may not be covered
by insurance. The Company will assess the acceptability of residual risks not covered by insurance
policies, and if the Company deems that such risks are not within the levels that the Company is willing to
accept, the Company may decide to avoid the risk by either terminating or forgoing the activity, project or
investment.
0- $/!0 !, "# ,#4 !
,# ,/ " -7 -#4-4 4-0/ #- # . 0-
Prices of oil and gas have demonstrated significant volatility in the past. Historically, prices of oil and gas
are influenced by a number of factors, including global and regional supply and demand, geopolitical
uncertainty, market speculation, domestic and foreign governmental regulations and actions, global and
regional economic conditions, weather conditions and natural disasters. It is not possible to accurately
forecast future oil and gas price movements and trends. Declines in crude oil and gas prices will
adversely affect the Company’s business, prospects, and results of operations.
The Company mitigates price risks by evaluating the economic sensitivity of investment opportunities to
low product prices and taking this into consideration when making investment decisions.
18
*, - ! -4 # +- ! #-
*,2 - !# -/ , /- " #0" -0
This Prospectus includes estimates made by third parties of oil and gas reserves and resources.
Estimates of reserves and resources should be regarded only as estimates that may change as additional
technical and commercial information becomes available. Not only are such estimates based on
information which is currently available, but such estimates are also subject to the uncertainties inherent
in the application of judgmental factors in interpreting such information. The quantities that might actually
be recovered should they be discovered and developed may differ significantly from the estimates
presented herein.
As of the date of this Prospectus, the Company has not independently verified the estimates provided by
third parties. As estimates of reserves and resources change over time, the Company will have to adjust
its business plans and strategies. Any significant downward revision in the estimates of reserves and
resources may adversely affect the Company’s financial condition, future prospects and market value.
"*./ ,#0- 8 + /,8
-5!/, "# ,#4 0"# ,0
$, / #5 8+ 0+ +- "*.,#2 *,2 /" 0"# ,0 / 0-# - ,#4 ,.. "3,/ $ "* +- "3- #*-# " " +- 8 - - .-#,/ ;-4
Substantially all of the Company's revenues are or will be derived from SCs, which give the Group and
their respective joint venture partners exclusive rights to conduct exploration and development operations
over certain blocks covered by SCs. The Group and their joint venture partners are also expected to
secure business licenses and permits in relation to their operations. The Group and their joint venture
partners’ operations may be restricted, suspended or terminated if the Group, their joint venture partners
or any of their respective contractors and assignees fail to satisfy its contractual obligations under the
contracts, and the laws, rules and regulations governing such contracts, or to secure and maintain
required licenses and permits. This may prevent the Group and their joint venture partners from further
exploration and development activity within the relevant concession areas which in turn could materially
and adversely affect the Company’s business, financial condition, results of operations and prospects.
The foregoing risk is mitigated by the Group’s respective policies, which include compliance with laws,
regulations and contracts, and exerting all reasonable efforts to secure and maintain licenses and permits
required for its business and undertakings. The Group also adopts provisions in their agreements with
their joint venture partners to address defaults and non+compliance with laws, regulations and contracts.
"*.-
"# # -0! #5 -70/! 3- 5+
*,2 +,*.- +- 0"*.,#2: 5 "8 + ,#4 -7.,# "#
The Government has been taking steps to attract investments in the exploration and development of oil
and gas in the Philippines, particularly with respect to the application and award of petroleum SCs, which
is done through competitive public bidding. The Company’s competitors may have greater financial,
technical, and organizational capabilities than the Company, particularly international oil and gas
companies. Significant competitive pressure could result in the failure or increased costs to acquire
additional exploration and production assets, thereby causing a material adverse effect on the Company’s
business and results of operations.
The Company intends to remain competitive by leveraging the strengths discussed in “Description of
Business.”
#2 ."/ 0,/ # , / 2 # +- + / .. #- *,2 ,43- -/2 ,$$-0
- !/ "$ ".- , "# ,#4 $ #,#0 ,/ 0"#4 "#
+-
"*.,#2:
! #-
The Philippines has from time to time experienced political instability. In the last few years, there has
been political instability in the Philippines, including public and military protests arising from alleged
19
misconduct by the former administration. No assurance can be given that the political environment in the
Philippines will remain stable and any political or social instability in the future could result in inconsistent
or sudden changes in regulations and policies that affect the Group or any member of the Group, which
could have an adverse effect on the Company’s business, results of operations and financial condition.
- "
,0 3 - # +- + / .. #"*.,#2: ! #- -#3 "#*-#
0"!/4 4- , / ;- +- 0"!# 2 ,43- -/2 ,$$-0 #5 +-
The Philippines has been subject to sporadic terrorist attacks in the past several years. The Philippine
military has been in conflict with the Abu Sayyaf organization, which has been identified as being
responsible for kidnapping and terrorist activities in the country, and is also alleged to have ties to the
Al+Qaeda terrorist network. There can be no assurance that the Philippines will not be subject to further
acts of terrorism in the future, and violent acts arising from, and leading to, instability and unrest may
have a material adverse effect on the Company’s business, results of operations and financial condition.
+-
1 "$ ,#2 4"8#5 ,4- # +- "3- - 5# 0 -4
"*.,#2: ! #-
, #5 "$ +-
+ / .. #- *,2 ,43- -/2 ,$$-0
In March 2013, Fitch Ratings raised the Philippines’ sovereign credit rating to BBB+, the first time that the
country has received an investment grade rating from a major credit rating agency. An investment+grade
rating could lower the country’s cost of borrowing and widen its base of potential investors, as some funds
have restrictions on holding sub+investment grade debt. Other major credit rating agencies such as
Moody’s Investors Service and Standard & Poor’s have rated the Philippines as one notch below
investment grade with a positive outlook. The sovereign credit ratings of the Government directly affect
companies residing in the Philippines as international credit rating agencies issue credit ratings by
reference to that of the sovereign. No assurance can be given that Moody’s, Standard & Poor’s or any
other international credit rating agency will not in the future downgrade the credit ratings of the
Government and, therefore, Philippine companies, including the Company. Any such downgrade could
have an adverse impact on the liquidity in the Philippine financial markets, the ability of the Government
and Philippine companies, including the Company, to raise additional financing and the interest rates and
other commercial terms at which such additional financing will be made available.
+- "00! -#0- "$ #, ! ,/ 0, ,
".+- *,2 *, - ,//2 4
!. +-
"*.,#2: ".- , "#
The Philippines has experienced a number of major natural catastrophes in recent years, including
typhoons, volcanic eruptions, earthquakes, mudslides, droughts, floods and other weather+related events.
Natural catastrophes may disrupt the Company’s business operations, lead to disruptions in the electrical
supply to the Company’s project sites and impair the economic conditions in the affected areas, as well
as the Philippine economy. The Company cannot assure prospective investors that the insurance
coverage it maintains for these risks will adequately compensate the Company for all damages and
economic losses resulting from natural catastrophes, including possible business interruptions.
+- *, 1- . 0- "$ -0! - 0,# ,#4 4"- $/!0 !, - +- +, - +,3- #" --# .! / 0/2
,4-4 ,#4 +- -/, 3- 3"/, / 2 ,#4 // <! 4 2 "$ +- + / .. #- -0! - *, 1- *,2
!
,# ,//2 / * #3- " : , / 2 " -// +- +, - , , ! , /- . 0- " , , *- +-2
4- The market prices of securities can and do fluctuate, and it is impossible to predict whether the price of
the Shares will rise or fall. Securities may experience upward or downward movements, and may even
lose all value. There is an inherent risk that losses may be incurred rather than profit made as a result of
buying and selling securities. There may be a substantial difference between the buying price and the
selling price of such securities. Trading prices of the Shares will be influenced by, among other things:
20
–
–
variations in the Company’s operating results;
success or failure of the Company’s management team in implementing business and growth
strategies;
gain or loss of an important business relationship;
changes in securities analysts’ recommendation, perceptions or estimates of the Company’s
financial performance;
changes in conditions affecting the industry, the general economic conditions or stock market
sentiments or other events or factors;
differences between the Company’s actual financial operating results and those expected by
investors and analysts;
additions or departures of key personnel;
changes in general market conditions and broad market fluctuations; and
involvement in litigation.
–
–
–
–
–
–
–
These fluctuations may be exaggerated if the trading volume of the Shares is low.
Prior to the listing of the Shares at the Philippine Stock Exchange (PSE), there has been no public market
for the Shares in the Philippines. There can be no assurance that even after the Shares have been
approved for listing on the PSE, an active trading market for the Shares will develop or be sustained after
the listing, or that the Initial Listing Price will correspond to the price at which the Shares will trade in the
Philippine public market subsequent to the listing. There is no assurance that investors may sell the
Shares at prices or at times deemed appropriate.
! ! - ,/- "$ +, - # +- .! / 0 *, 1- 0"!/4 ,43- -/2 ,$$-0 +- . -3, / #5 *, 1- . 0"$ +- +, - ,#4 +, -+"/4- *,2 -7.- -#0- 4 /! "# # +- +"/4 #5
In order to finance the Company’s business and operations, and any expansion thereof, the Board will
consider funding options available to the Company, which may include the issuance of new Shares. The
market price of the Shares could decline as a result of future sales of substantial amounts of the Shares
in the public market or the issuance of new shares, or the perception that such sales, transfers or
issuances may occur. This could also materially and adversely affect the prevailing market price of the
Shares or the Company’s ability to raise capital in the future at a time and at a price that the Company
deems appropriate.
In addition, if additional funds are raised through the issuance of new equity or equity+linked securities by
the Company other than on a
basis to existing shareholders, the percentage ownership of
existing shareholders may be diluted. Such securities may also have rights, preferences and privileges
senior to those of the Shares.
+-
"*.,#2:
#3- *-#
!0 ! - *,2 *.-4- +- "*.,#2: , / 2 " .,2 4 3 4-#4
The Company may hold interests in petroleum and gas contracts through corporations that it has invested
in. Thus, the availability of funds to pay dividends to its shareholders and to service debt obligations
depends in part upon dividends that may be received from the Company’s subsidiary and affiliates. If the
Company’s subsidiary and affiliates incur debt or losses, such indebtedness or losses may impair their
ability to pay dividends or other distributions to the Company. As a result, the Company’s ability to pay
dividends and to service the Company’s indebtedness may be restricted.
The Company’s ability to declare dividends in relation to the Company’s Shares will also depend on the
Company’s future financial performance, which, in turn, depends on successfully implementing the
Company’s strategy, and on financial, competitive, regulatory, and other factors, general economic
conditions, demand and prices for the Company’s petroleum and other future products, costs of raw
materials and other factors specific to the Company’s industry or specific projects, many of which are
beyond the Company’s control. The receipt of dividends from the Company’s subsidiary and affiliates may
21
also be affected by the passage of new laws, adoption of new regulations or changes to, or in the
interpretation or implementation of existing laws and regulations and other events outside the Company’s
control. Philippine law requires that dividends be paid only out of unrestricted retained earnings calculated
according to Philippine accounting principles. In addition, restrictive covenants in bank credit facilities,
convertible bond instruments or other agreements that the Company or its subsidiary may enter into in
the future may also restrict the ability of the Company’s subsidiary to make contributions to the Company
and the Company’s ability to receive distributions or distribute dividends.
Finally, there is no assurance that the Company will maintain and increase its holdings in its subsidiary
and various affiliates. The Company evaluates each additional investment in its subsidiary, and may
choose to waive its right to invest in these entities, which could result in the dilution of its interest therein.
22
TA Petroleum and its stockholders will not be offering Shares for subscription or sale in connection with
the Dividend Distribution or the Listing. Consequently, there will be no proceeds from the Dividend
Distribution or the Listing.
23
Upon Listing, the Initial Listing Price for the Shares shall be P4.60 per share.
The Initial Listing Price is supported by the Updated Fairness Opinion dated 8 August 2014 prepared by
Isla Lipana & Co. PricewaterhouseCoopers, a firm accredited by the PSE in accordance with the PSE
Guidelines for Fairness Opinions and Valuation Reports, as required under Article III, Part H, Section 3 of
the Amended Rules on Listing by Way of Introduction. A copy of the Updated Fairness Opinion is
attached to this Prospectus.
The initial listing price is within the valuation range per share (at 250 million outstanding TA Petroleum
shares, post+property dividend distribution), of P3.79 to P6.34 per share based on the Updated Valuation
Report in Support of the Updated Fairness Opinion prepared by Isla Lipana & Co.
PricewaterhouseCoopers.
TA Petroleum chose to set the said initial listing price at the relatively lower end of the valuation range in
order to encourage the general investing public's investment and trading in the TA Petroleum shares, post
listing, and provide existing and post+listing investors potential share price upsides should the exploratory
activities on the Service Contracts, as well as any subsequent SC participations, result in confirmed
reserves and high potential for commercial operations.
Further, based on the number of TA Petroleum shares to be distributed to non+related parties, the
minimum price that would result to a public float of at least 20% or P250 million is P4.57 per share
(rounded up to P4.60 per share).
!**, 2 "$ ,/!, "#
-."
,#4 , #-
. # "#
Based on the data provided by the Company, Isla Lipana & Co. PricewaterhouseCoopers calculated that
the estimated equity value of the Company ranges from P936.4 million to P1,620.1 million as of 31 March
2014 (the “Valuation Date”). Isla Lipana & Co. PricewaterhouseCoopers adopted both the joint venture
method and multiples of exploration expenditure method.
Using 250 million shares, the table below summarizes the estimated price per Share using the two
methodologies adopted in the valuation:
Valuation Methodology (P per Share)
Multiples of Exploration Expenditure Method
Joint Venture Method
,
"8
5.78
3.79
5+
5.78
6.34
"$ ,/!, "#
The basis of our valuation is fair value. We define fair value as the amount that would be negotiated at the
Valuation Date, in an open and unrestricted market, between a knowledgeable, willing, but not anxious
buyer, and a knowledgeable, willing, but not anxious seller, acting at arm’s+length basis.
24
,/!, "#
.. ",0+-
4". -4
Isla Lipana & Co. PricewaterhouseCoopers considered the use of the following methodologies to
calculate a range of estimated values for the shares of the Company:
Multiples of exploration expenditure method (“MEE”) – This approach uses as basis the historical cost
of exploration, plus warranted future exploration expenditures already committed to the project. The
total exploration cost is then multiplied to a prospective enhancement multiplier (“PEM”), which is
determined based on the prospectivity of the area where the SC is located.
Joint venture method (“JV”) – The JV method uses as basis the amount paid or amount to be spent
by a joint venture partner on exploration to earn a given percentage of interest in the project.
Note that a valuation exercise is not a precise science and the conclusions arrived at, in many cases, will
of necessity be subjective and dependent on the exercise of individual judgment.
Among the sources of information relied upon by Isla Lipana & Co. PricewaterhouseCoopers for the
Fairness Opinion was a technical report prepared by add ips pty Itd. (“Add Energy”) dated 22 March
2013, which estimated the current risked values of TA Petroleum’s interests in each of the four (4) service
contracts as shown in the table below. All values are in millions of US dollars.
- 3 0"# ,0
SC 6A
SC 6B
SC 51 North
SC 51 South
SC 55
- "/-!*
"/4 #5
2.334%
14.063%
6.67%
6.67%
6.82%
*, -4
,/!- B
! -#
1-4
* // "# C
2.8
0.4
5.5
0.0
32.9
SC 55
5% Option
2.3
SC 69
Total
6%
4.6
48.5
,/!, "# "$ - 3 0-
"**-#
TA Petroleum has sold the option
to Frontier Gasfields Ltd.
"# ,0
# "4!0 "#
The valuation of service contracts currently held by the Company, as summarized in subsequent
discussions below, is lifted from the independent valuation report prepared by Add Energy, an established
company based in Western Australia whose expertise, among others, is to conduct independent and
unbiased assessment and evaluation of petroleum properties of exploration companies.
Add Energy was engaged by TA Oil to conduct valuation of the four service contracts, namely: Service
Contract 6 Block A and Block B (SC 6 Block A and SC 6 Block B), Service Contract 51 (SC 51), Service
Contract 55 (SC 55), and Service Contract 69 (SC 69). The objective was to attach likely monetary values
to these service contracts.
The said valuation was prepared by Mr. Rob Marshall and Mr. Brad Girdwood, who are qualified reserves
1
and resource evaluators (“QRRE”) under the Australian Stock Exchange (“ASX”) Listing Rules. The ASX
1
A QRRE is defined under Section 19.12, Chapter 19 of the ASX Listing Rules as follows:
“A person is a QRRE if he or she:
25
Listing Rules require reports of listed companies on estimates of petroleum reserves, contingent
resources and prospective resources to be prepared by or under the supervision of a QRRE. Mr. Marshall
and Mr. Girdwood meet the requirements to be considered as QRREs. Mr. Marshall, the author of the
Report, has a Bachelor of Science (Hon) in Applied Chemistry from Kingston Polytechnic, United
Kingdom, and a Master of Engineering in Petroleum Engineering from Heriot+Watt University, United
Kingdom. Mr. Marshall has more than 30 years of senior technical and management experience in the
international upstream oil and gas sector. Mr. Girdwood, the reviewer of the Report, has a Bachelor of
Engineering (Mechanical) from Curtin, West Australia. Mr. Girdwood has more than 21 years of senior
2
technical and management experience in the international upstream oil and gas sector. Moreover, both
are members of the Society of Petroleum Engineers (“SPE”), a professional organization of engineers
and geologists with the power to suspend or expel members, in accordance with the requirements for
qualification of QRREs under the ASX Listing Rules.
The SPE, a global and American+based organization, has been a leader in developing the technical
definitions that have become the industry standard for evaluating petroleum reserves and resources. The
SPE is a resource for technical knowledge related to the oil and gas exploration and production industry.
Oil and gas reserves and resources are defined as volumes that will be commercially recovered in the
future. Unlike the inventory of a manufacturing company, reserves are physically located in reservoirs
deep underground and cannot be visually inspected or counted. The reserves are estimated based on the
evaluation of data that provides evidence of the amount of oil and gas present.
The SPE, in alliance with the American Association of Petroleum Geologists, the Society of Exploration
Geophysicist, the Society of Petroleum Evaluation Engineers (all U.S.+based) and the World Petroleum
Council, formulated the Petroleum Resource Management System (“SPE+PRMS”). The SPE+PRMS
contains the globally+accepted guidelines specific for Petroleum evaluation which SPE members are
bound to strictly follow in their assessment and reporting of petroleum resources/reserves. The SPE+
PRMS incorporates a framework that categorizes reserves and resources according to the level of
certainty associated with their recoverable volumes, and classifies them according to the potential for
reaching commercial producing status. A copy of the SPE+PRMS Definitions and Guidelines is annexed
to this Prospectus.
The ASX Listing Rules require that an entity publicly reporting petroleum resources must use the SPE+
3
PRMS .
The Philippine Department of Energy (“DOE”) had issued a certification dated 30 September 2013 stating
that the valuation report prepared by Add Energy was made in accordance with globally acceptable
standards acceptable to the DOE and that the SPE+PRMS is the most widely used international reporting
standard for the classification of petroleum assets.
All technical, legal, financial and economic data or information germane to the service contracts were
furnished by TA Oil to Add Energy for proper evaluation and examination. A high degree of unbiased and
objective determination of the parameters resulting from these various types of data were carried out by
(a)
has obtained a bachelors or advanced degree in petroleum engineering, geology, geophysics or other discipline of
engineering or physical science;
(b) has a minimum of five years practical experience in petroleum engineering, petroleum production geology or
petroleum geology, with at least three years of such experience being in the evaluation and estimation of petroleum
reserves, contingent resources and prospective resources; and
(c) is a member of good standing of a professional organisation of engineers, geologists or other geoscientists whose
professional practice includes petroleum reserves, contingent resources and prospective resources evaluations
and/or audits. The professional organisation must have disciplinary powers, including the power to suspend or expel
a member.”
2
Section 10. Personnel, Valuation of Service Contracts Trans+Asia Oil and Energy Development Corporation dated 22 March 2013,
page 33.
3
Chapter 5, ASX Listing Rules.
26
Add Energy consistent with established international standards for valuing petroleum contracts and
properties.
- +"4"/"52
Add Energy proceeded to determine the potential risked net present values of yet to be discovered
resources (oil, gas or condensate) in each service contract, taking into consideration technical factors,
e.g. prospective petroleum resources, probability of success, drilling depths, water depths (if offshore),
fiscal regime under the Philippine service contract system, worldwide market conditions, published reports
of service contract Operators, specific work program and budgets and historical costs, terms of joint
venture participation, and other conditions attendant to each service contract.
Distilling the process mentioned above, Add Energy came out with the following parameters for valuing
the yet undiscovered hydrocarbon resources in service contracts in the Philippines, consistent with
published local and international data.
"0, "#
,-
-. + B*C
,
- -# ,/!BDE % ))) 0! 0 $-B*0$CC
/E "#4-# , BDE /C
Onshore
(not applicable)
0.75
15
Shallow Water
< 100
0.75
15
Mid Water
100 + 1000
0.625
12.5
Deep Water
> 1000
0.50
10
,/!, "# "$ #4 3 4!,/ - 3 0-
"# ,0
Following the above table, TA Petroleum’s service contracts were valued as follows:
1. Service Contract 6
This service contract is divided into two parts, namely: the Octon Block (Block A) and the Bonita
Block (Block B). The Company holds a 2.334% equity interest in Octon Block and a 14.063% interest
in Bonita block.
(a) Octon Block:
There are 5 prospects/leads in this block with their corresponding mean prospective recoverable
resources estimated as follows:
" .-0 E -,4
Barselisa Galoc Clastic Unit (GCU)
Barselisa Batas Conglomerate Unit (BCU)
Malajon Anticlinorium GCU
East Barselisa GCU
East Barselisa BCU
Average
-,#
" .-0 3- -0"3- , /(mmbl)
135
52
136
43
14
76
- "! 0-
27
Assuming various probabilities that are consistent with robust and unbiased estimates as
practiced in the exploration industry, the valuation of TA Petroleum’s interests was estimated as
follows:
Probability of new 3D seismic defining a drillable prospect
GPOS (geologic probability of success) for first well
If discovery, probability of commercial development
Overall probability of making a commercial discovery
Mean Prospective Recoverable Resources (mmbbl)
Oil value on discovery ($/bbl)
Unrisked value of a commercial oil discovery ($ million)
Current risked value of a discovery ($ million)
Trans+Asia equity (%)
Current risked value of Trans+Asia’s share ($ million)
50 %
25 %
85 %
11 %
76
15
1139
121
2.33
2.8
Henceforth, risked value of the Company’s 2.334% in the Octon Block: US$ 2.8 million
(b)
Bonita Block:
There is no firm commitment to drill an exploration well in this block, hence no value may be
derived on the basis of potential resources accruing from drilling a prospect.
A farm+in agreement was executed between the SC 6 (Bonita Block) joint venture partners and
the trio of Peak Oil and Gas, Blade Petroleum and VenturOil (or “Farminees”). The Farminees are
obligated to pay the farm+out parties $ 1.8 million to acquire 64.5% equity in the block.
On this basis, TA Petroleum’s interest in Bonita block has a value of (14.06/64.5) x $ 1.8 million
or US$ 0.4 million.
This service contract is divided into two parts, namely: the North Block and South Block.
TA
Petroleum holds 6.67% equity interest in the North Block and 6.67% equity interest in the South
block.
(a) North Block:
This block contains the prospect San Isidro Anticline located onshore Northwest Leyte which has
been adequately defined and confirmed by new 2D seismic data, thereby affirming its drillable
status.
Assigning probabilities appropriate for the onshore setting, the valuation of SC 51 North Block
was determined as follows:
Prospect
Oil NPV ($/bbl)
GPOS (geologic probability of success)
Probability of Discovery being commercial
Risked NPV ($ million)
Trans+Asia Equity
San Isidro
23
15
25 %
95 %
82
6.67 %
28
Risked NPV of Trans+Asia Equity ($ million)
5.5
Therefore, the risked value of the Company’s 6.67% interest: US$ 5.5 million
(b) South Block:
The South Block contains the Argao prospect which was covered by 3D seismic data and
subsequently confirmed to be a huge anticline capable of hosting oil accumulation at various
formation levels. This prospect was valued as follows:
Prospect
Oil NPV ($/bbl)
GPOS (geologic probability of success)
Probability of Discovery being commercial
Risked NPV ($ million)
Trans+Asia Equity
Risked NPV of Trans+Asia Equity ($ million)
Argao
12
12.5
33 %
85 %
38
6.67 %
2.5
Therefore, the risked value of the Company’s 6.67% in the South Block is $ 2.5 million. However,
this value is highly dependent on whether prospective farm+in partner (Frontier Oil Corporation)
exercises its option to farm+in and commit to drilling the Argao prospect.
The Company’s participation in SC 55, through its subsidiary, has two components – a direct equity of
6.82% and an option to acquire additional 5% equity. The latter is the subject of an agreement with
Frontier Gasfields, Ltd. (“Frontier”) and provides potential future revenue.
(a) Estimate of risked value of the 6.82% equity:
Seven prospects have been identified in the SC 55 block with corresponding recoverable
reserves as follows:
Prospect
Cinco
Hawkeye
Uno
Tres
Dos
Quattro
Seis
Total
Gas
(trillion cubic feet (tcf))
2.1
0.8
0.9
4.4
0.5
0.5
11.0
20.0
Condensate
(mmbbl)
74
27
29
156
18
19
385
708
Oil
(mmbbl)
0
204
0
0
0
0
0
204
Present technical assessments favor drilling of the Cinco and Hawkeye prospects. Under such
scenario, the valuation of the 6.82% equity was determined as follows:
#
Recoverable Gas
TCF
#0"
2.1
,81-20.78
" ,/
29
Recoverable Condensate
Recoverable Oil
Gas NPV
Oil/Condensate NPV
Unrisked Asset NPV
Probability of Well Being drilled
GPOS
Probability of Discovery being
commercial
Risked NPV
MMBBL
MMBBL
$/mcf
$/bbl
$million
%
%
%
74
0
0.50
10
1790
90
25
85
27
204
0.50
10
2703
23
27
85
$million
342
140
482
From table above, the current risked value of the equity of 6.82% is US$ 32.9 million.
(b) Risked value of option agreement
The option to re+acquire 5% interest in the block has been dealt to Frontier. The potential
payments to be made by Frontier under the deal are valued accordingly to get its proper worth,
as follows:
D* // "#
Cash to be paid when well spuds
Frontier shares to be provided when
well spuds
Cash to be paid if option is exercised
after discovery
TOTAL
0.25
" , / 2
(%)
90
1-4
*"!#
0.23
0.56
90
0.50
7.0
22.5
1.58
7.81
2.30
The option agreement with Frontier, therefore, has a current risked value of US$ 2.3 million.
(c) Total risked value of the interest in SC 55, combining (a) and (b), is US$ 35.2 million.
TA Petroleum has a current participation share of 6 % in the block. The value of this share will be
enhanced if a farm+in partner will commit to drilling the main prospects in the block.
The cost of an exploration well drilled in SC 69 is around $ 45 million (dry hole basis) and
$ 60 million for a fully evaluated and flow+tested well.
The prospects identified in the block and corresponding resource estimates are as follows:
,*."
Water depth (meters)
Top reservoir depth (meters)
Mean Recoverable Oil
(mmbbl)
Mean Recoverable Gas (bcf)
,*."
"! +
,#,5,! ,
730
1,230
670
1,300
640
1,660
62.7
102
24.3
184
299
58.2
30
(a)
The risked value of TA Petroleum’s 6% equity under the scenario that no farm+in partner is
secured and two wells are drilled, was determined as follows:
-//
Probability of drilling first well (Lampos South)
GPOS for first well
Probability of commercial development if discovery
Lampos South Recoverable Oil (mmbbl)
Oil Value on discovery ($/bbl)
Unrisked value of a commercial oil discovery ($million)
Current risked value of a discovery at Lampos South ($million)
Cost of exploration well (dry hole basis) ($million)
Risked cost of exploration well to current JV partners ($million)
Overall risked value of Lampos South to current JV ($million)
Share of Value retained by Trans+Asia (%)
Current risked value of Trans+Asia’s share of Lampos South ($million)
40%
25%
50%
5%
102
12.5
1275
64
45
0
64
6
3.8
-0"#4 -//
Probability of drilling second well (Lampos)
GPOS for second well
Lampos Recoverable Oil (mmbbl)
Current risked value of a discovery at Lampos ($million)
Risked cost of exploration well JV ($million)
Overall risked value of Lampos to current JV ($million)
Current risked value of Trans+Asia’s share of Lampos ($million)
5%
50%
75%
2%
63
12.5
787.5
15
45
2
13
6
1
Henceforth, current risked value of TA Petroleum’s equity in SC 69 under the said scenario is
US$ 4.6 million.
(b) If a Farm+in partner is secured, the risked value of the Company’s 6% equity was valued as
follows:
-//
GPOS for first well
Lampos South Recoverable Oil (mmbbl)
100%
25%
50%
13%
102
12.5
31
1275
159
45
0
159
6
9.6
-0"#4 -//
Lampos Recoverable Oil (mmbbl)
13%
50%
75%
5%
63
12.5
787.5
37
45
6
31
6
2
The potential future risked value of TA Petroleum’s equity in SC 69 under the said scenario,
combining the two results from above, was US$ 11.4 million.
!**, 2 "$ ,/!, "#
A summary of current risked values of the interests held by TA Petroleum in the service contracts, derived
from all of the above presentations, are tabulated below:
- 3 0-
"# ,0
SC 6 (Octon)
SC 6 (Bonita)
SC 51 (North Block)
SC 51 (South Block)
SC 55 (Direct)
SC 55 (Option)
SC 69
<! 2 , 0 ., "#
BFC
2.334
14.063
6.67
6.67
6.82
5
6
*, -4
1-4 ,/!B
D * // "# C
2.8
0.4
5.5
0.0
32.9
2.3
4.6
9> 6
0/, *Unlike disclosures of geological, mining, metallurgical, and related technical information which are
required to be based on the information prepared by or under the supervision of a Philippine Mineral
Reporting Code (“PMRC”) Competent Persons, Philippine rules and regulations do not require reports on
oil and gas assets to be made by a competent person or an equivalent thereof. There is no existing
32
accreditation process for a competent person in the oil and gas industry. Neither is there a reporting code
for oil and gas in the Philippines, similar to the PMRC.
As previously discussed under Risk Factors on page 17, even if a substantial oil or gas deposit is
discovered, there are other factors that may prevent or delay its commercial development, such as drilling
and production hazards; political, social and/or environmental issues; and insufficient market demand
and/or infrastructure, particularly for a natural gas development.
The exploration and development of oil and gas resources are capital intensive. The Company’s ability to
fund such expenditures and investments depends on numerous factors, including the ability to generate
cash flow from production, availability and terms of external financing, and the extent to which work
commitments can be adjusted under the relevant Service Contracts and similar agreements. If the
Company is unable to obtain the required funding, it will have to adjust its business plans and strategies,
and this may adversely affect the Company’s future prospects, market value and results of operations.
The Company mitigates the foregoing risks by sharing the costs and risks of exploration and development
with suitable joint venture partners and undertaking phased exploration with exit options. Where funding
is insufficient, the Company may adjust its business plans and strategies
This Prospectus includes estimates made by third parties, in particular the Service Contract operators, of
oil and gas reserves and resources. Estimates of reserves and resources should be regarded only as
estimates that may change as additional technical and commercial information becomes available. Not
only are such estimates based on information which is currently available, but such estimates are also
subject to the uncertainties inherent in the application of judgmental factors in interpreting such
information. The quantities that might actually be recovered should they be discovered and developed
may differ significantly from the estimates presented herein.
As of the date of this Prospectus, the Company has not independently verified the estimates provided by
third parties. As estimates of reserves and resources change over time, the Company will have to adjust
its business plans and strategies.
As stated in the valuation report of Add Energy, the valuation of the Service Contracts are dependent on
several factors:
"# ,0
6%
B" / G
5, C
"0, "#
Eastern
Visayas
, #Otto Energy
Investments,
Cosco Capital
Inc., PetroEnergy
Resources Corp.
" 1 "5 ,*
&)%' &)%9
Post+well
geological and
geophysical
studies continue.
Operator: Otto
Energy
Investments
66
B5, C
Offshore
West
Palawan
Otto Energy
Philippines, Otto
Energy
Investments
,0 "
+, *,2 ,$$-0 +- 3,/!, "#
"$ +- - 3 0- "# ,0
The value of the South Block is entirely
dependent on whether Frontier Oil
Corporation exercises its option to farm+
in and commits to drilling a well on the
Argao Prospect. Until the option is
exercised and there is a commitment to
drill an exploration well, no value can be
ascribed to the South Block. Even after
a well is committed there remains a
possibility that a rig may not be secured
or that Frontier will have a change of
heart.
Preparations for
drilling in 2014,
farmout
33
"# ,0
"0, "#
, #-
" 1 "5 ,*
&)%' &)%9
,0 "
+, *,2 ,$$-0 +- 3,/!, "#
"$ +- - 3 0- "# ,0
Operator: Otto
Energy
Investments
(
/"01
B" / G
5, C
(
/"01
B" /C
Northwest
Palawan
Northwest
Palawan
Pitkin Petroleum,
Philodrill Corp.,
PetroEnergy
Resources,
Philex Petroleum,
Forum Energy
Philippines,
Anglo+Philippine
Holding, Alcorn
Gold Resources
Operator: Pitkin
Petroleum
Philodrill Corp.,
Nido Petroleum
Ltd., Oriental
Petroleum &
Minerals Corp.,
Forum Energy
Philippines Corp.,
Alcorn Petroleum
&Minerals Corp.
Processing of
new 3D seismic
data acquired in
late 2013
ongoing,
The value depends on whether the new
3D seismic data confirms the existence
of a drillable prospect and Pitkin
exercises the option to proceed to
Phase+2 and drill an exploration well.
Geological and
Geophysical
studies ongoing
Operator:
Philodrill Corp.
(A
B" / G
5, C
Camotes
Sea,
Eastern
Visayas
Otto Energy,
Frontier Gasfields
Pty. Ltd.
Transfer of
interest to non+
withdrawing
parties; farmout
Operator: Otto
Energy
34
Since there is no additional issuance of shares, except to the extent that 49% of TA Oil’s Shares will be
distributed to its stockholders, there will be no dilution as a result of the Dividend Distribution and Listing.
35
TA Oil will distribute 123,161,310 TA Petroleum common shares, owned by TA Oil, to TA Oil’s
shareholders as of 5 August 2013, as property dividend at the ratio of 2.55 Shares for every 100 shares in
TA Oil, provided that no fractional shares shall result and any resulting dividend with fractional shares
shall be rounded down to the nearest whole number, and cash in the amount of P0.013 per share to all
stockholders of record of the Corporation as of 5 August 2013. The distribution of the property dividend is
subject to the approval by the SEC of the registration statement for the TA Petroleum shares pursuant to
the Securities Regulation Code (“SRC”); and issuance of a Certificate Authorizing Registration of the
TA Petroleum shares as issued by the Bureau of Internal Revenue (“BIR”). An amount equivalent to the
taxes due on the dividend shall be withheld from the cash component of the dividend by the Company or
withholding agent with the remaining cash dividend to be distributed together with the property dividend.
U.S. based stockholders of TA Oil shall receive cash of P0.0385 per TA Oil share, in lieu of TA Petroleum
shares and the cash dividend of P0.013 per share, in view of the requirements under U.S. securities laws
and regulations. The rate of P0.0385 is based on the carrying cost of TA Oil’s investment in the
Company.
In connection with the Dividend Distribution, TA Petroleum filed with the PSE on 5 December 2013 an
application for listing by way of introduction of all of the outstanding Shares on the Main Board of the
PSE.
Apart from the Dividend Distribution, Shares will not be distributed, and no offer of Shares will be
conducted.
After the Dividend Distribution is completed, TA Petroleum will seek the approval of the PSE for the
Listing of all of the outstanding Shares on the Main Board of the PSE.
36
Certain legal matters under Philippine law relating to the Dividend Distribution and Listing were passed
upon by Migallos & Luna Law Offices, an independent legal counsel. Migallos & Luna Law Offices does
not have and will not receive any direct or indirect interest in the Company or in any of the Company’s
securities (including options, warrants or rights thereto) pursuant to, or in connection with the Shares, and
has not acted as promoter, underwriter, voting trustee, or as the Company’s employee.
Maybank ATR Kim Eng Capital Partners, Inc. provided advice in connection with the Dividend
Declaration, the SEC registration and the Listing processes.
Mata+Perez & Francisco provided tax advice in support of the Registration Statement, Prospectus, and
other documents in connection to the registration and listing of the shares.
SGV, independent certified public accountants, has audited the Company’s interim consolidated financial
statements without qualification as at 31 March 2014, and for the three months ended 31 March 2014 and
2013, comprising the interim consolidated balance sheet as at 31 March 2014 and the interim
consolidated statements of income, statements of comprehensive income, statements of changes in
equity and statements of cash flows for the three months ended 31 March 2014 and 2013, and the
consolidated financial statements as at and for the years ended December 2013, 2012 and 2011
comprising the consolidated balance sheets as at December 2013, 2012 and 2011 and consolidated
statements of income, statements of comprehensive income, statements of changes in equity and
statements of cash flows for the years then ended. Such consolidated financial statements are included in
this Prospectus on SGV’s authority as independent auditors. SGV has agreed to the inclusion of its report
dated 16 May 2014 and 7 February 2014 with respect to the Company’s interim consolidated financial
statements as at 31 March 2014 and for the three months ended 31 March 2014 and 2013 and
consolidated financial statements as at and for the years ended 31 December 2013, 2012 and 2011,
respectively in the registration statement dated 22 November 2013 in connection with the registration of
the Shares under the provisions of the Securities Regulation Code (SRC), preparatory to the Listing. SGV
does not have and will not receive any direct or indirect interest in the Company or in any of the
Company’s securities (including options, warrants or rights thereto) pursuant to, or in connection with the
Shares, and has not acted as promoter, underwriter, voting trustee, or as the Company’s employee.
!4 ,#4
!4
-/, -4 --
On 7 February 2014, the stockholders, upon endorsement by the Board of Directors, approved the
appointment of SGV & Co. as independent auditor for fiscal year 2014.
On 18 February 2013, the stockholders, upon endorsement by the Board of Directors, approved the
appointment of SGV & Co. as independent auditor for fiscal year 2013.
For 2011, 2012 and 2013, the independent auditors were engaged to express an opinion on the
consolidated financial statements of the Company and its subsidiary. Total fees were P24,800 for 2011,
P80,600 for 2012 and P484,000 for 2013.
37
,7 -There were no tax+related services rendered by the independent auditors.
//
+-
--
There were no other professional services rendered by the independent auditors.
!4 G
1
,#,5-*-#
"** --:
.. "3,/ "/ 0 - ,#4
"0-4! -
In accordance with the resolutions of the Company’s Board of Directors regarding Corporate Governance
matters, an Audit & Risk Management Committee shall be set up by the Company.
The Company’s Audit & Risk Management Committee’s approval policies and procedures for external
audit fees and services shall be set forth in the Company’s Code of Corporate Governance to be
submitted by the Company in accordance with the Philippine Code of Corporate Governance.
Prior to the commencement of audit work, the independent accountants shall make a presentation of their
audit program and schedule to the Company’s Audit & Risk Management Committee including a
discussion of anticipated issues on the audit work to be done. After audit work, independent accountants
shall present before the Audit & Risk Management Committee its comprehensive report discussing the
work carried out, areas of interest and their key findings and observations.
The independent accountants shall also prepare reports based on agreed upon procedures on the
Company’s quarterly financial results. The reports shall be presented to the Audit & Risk Management
Committee for their approval and endorsement to the Board of Directors.
The Company’s Audit Committee shall be composed of at least three (3) members of the Board of
Directors, who shall preferably have accounting and finance backgrounds, one of whom is an
Independent Director and another with audit experience. The Chair of the Audit and Risk Management
Committee shall be an Independent Director
38
Although no proceeds will be derived from the Dividend Distribution and Listing, TA Oil will incur the
following estimated expenses:
*, -4 -7.-# SEC Filing and Listing Fees
PSE Fees (with value added tax)
Listing Fees
Processing Fees
Legal and Professional Fees
Documentation/Other expenses
Total Estimated Expenses
P
1,113,320
P
1,288,000
56,000
10,800,000
1,742,680
15,000,000
39
TA Petroleum is a Philippine corporation organized on 28 September 1994 as a wholly+owned subsidiary
of TA Oil. The Company’s Articles of Incorporation and By+laws were amended on 28 August 2012, to
focus the primary purpose of the Company to engaging in the business of oil and gas exploration,
development, and production both domestically and internationally, and to change its name from
“Trans+Asia (Karang Besar) Petroleum Corporation” to its present name.
Under Section 2 Article XII of the 1987 Philippine Constitution, the State may directly undertake the
exploration, development, and utilization of natural resources or it may enter into co+production, joint
venture, or production+sharing agreements with Filipino citizens, or corporations or associations at least
60 per centum of whose capital is owned by such citizens. The Constitution further states that the
President may enter into agreements with foreign+owned corporations involving either technical or
financial assistance for large+scale exploration, development, and utilization of minerals, petroleum, and
other mineral oils according to the general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the country.
As discussed under Description of Properties, page 65 hereof, the Company is a direct Contractor under
three (3) Service Contracts and, indirectly through a 69.35% owned subsidiary, another Service Contract,
pursuant to Presidential Decree No. 87 or “The Oil Exploration and Development Act of 1972” (“PD 87”).
As Contractor, the Company is obligated to undertake, manage and execute petroleum operations and to
provide all necessary services and technology and perform the exploration work obligations and program
prescribed in the said Service Contracts. TA Petroleum, after the distribution by TA Oil of the property
dividend, continues to comply with the said nationality requirement.
On December 21, 2012, TA Petroleum acquired TA Oil’s interests in four oil and gas SCs in the
Philippines, namely: (a) 6.82% interest (gross) in SC 55 West Palawan (through its 69.35% share in its
subsidiary, Palawan55, (b) 6.67% interest in SC 51 East Visayas, (c) 6.00% in SC 69 Camotes Sea, and
(d) 2.334% in SC 6 Block A and 14.063% in SC 6 Block B.
On December 21, 2012, TA Oil signed a Memorandum of Agreement with TA Petroleum assigning to
TA Petroleum its SC Participating Interests in SC 51, SC 69, SC 6 and reimbursing TA Oil of the deferred
exploration costs in the SCs in the aggregate amount of P66.51 million.
TA Oil and Palawan55 executed a Memorandum of Agreement on 21 December 2012 assigning to
Palawan55 its Participating Interest in SC 55 and reimbursing TA Oil of the deferred exploration costs
amounting to P5.71 million.
The foregoing deferred oil exploration costs represent TA Oil’s share in the expenditures incurred under
the SCs with the DOE. The contracts provide for certain minimum work and expenditure obligations and
the rights and benefits of the contractor. Operating agreements govern the relationship among the
co+contractors and the conduct of operations under a service contract.
Please refer to TA Petroleum’s Consolidated Audited Financial Statements as of 31 December 2013,
under “Note 6 – Deferred Exploration Costs” for the details of the assignment of interests. This is likewise
reflected in the Balance Sheet for the same period.
The above considerations are also discussed in TA Oil’s Parent Audited Financial Statements as of
31 December 2013, under “Note 15 – Deferred Exploration Costs”.
40
*-/ #November 2012
SEC approves increase of capital and restructuring of TA Petroleum.
November 2012
TA Petroleum subscribes to 25 billion new shares at par value of P0.01.
November 2012
Palawan55, a subsidiary of TA Petroleum and TA Oil, is incorporated.
December 2012
TA Petroleum and TA Oil sign a Memorandum of Agreement and Deeds of
Assignment for the transfer of SC 6 (Block A and B), SC 51 and SC 69.
Palawan 55 and TA Oil sign a Memorandum of Agreement and Deed of
Assignment for the transfer of SC 55.
February 2013
TA Oil requests DOE approval of the assignment contracts.
April 23, 2013
The DOE approves the assignment of the entire participating interests of TAOil
in: 1) SC 6 Block A, SC 6 Block B, SC 51 and SC 69 to Trans+Asia Petroleum
Corporation, and 2) in SC 55 to Palawan55.
May 31, 2013
SEC approves the increase in par value of TA Petroleum from P0.01 to P1.00
per share.
September 27, 2013
SEC approves the amendment to include the Lock+up Requirements in
accordance with the PSE’s Listing Rules for Main and SME Boards.
"
,#1 !. 02
4
-0- 3- + . " " +-
* /,
"0--4 #5
The Company and its subsidiary have never been subject to bankruptcy, receivership or other similar
proceedings.
4
In 2013, the par value of TA Petroleum shares was increased to P1.00 per share.
41
H
Set forth below is TA Petroleum’s corporate organizational chart as of the date of this Prospectus.
42
Below is TA Oil’s corporate organizational chart with participating interests in Service Contracts prior to
transfer of the Service Contracts and prior to the Divided Distribution.
Set forth below is TA Oil’s corporate organizational chart with participating interests in Service Contracts
after transfer of the said Service Contracts but prior to the Dividend Distribution.
43
Also set forth below is TA Oil’s corporate organizational chart after the Dividend Distribution.
The Company’s primary business is the exploration and production of crude oil and natural gas through
interests in petroleum contracts and through holdings in resource development companies with interests
in petroleum contracts. Crude oil, natural gas and coal are fossil fuels that are derived from organic
material deposited and buried in the earth’s crust millions of years ago. Fossil fuels currently account for
more than half of primary energy mix in the Philippines. Coal and natural gas are used to fuel nearly
two+thirds of power generation in the country. It is likely that fossil fuels will continue to be major energy
source over the next decades, even with the aggressive development of alternative sources of energy.
A petroleum discovery is made when significant amounts of oil and/or gas are encountered in a well and
are flowed to the surface. Following a discovery, additional wells (called appraisal or delineation wells)
are drilled to determine whether the petroleum accumulation could be economically extracted or not. If
the results are positive, the oil or gas field is developed by drilling production wells, and installing the
necessary production facilities such as wellheads, platforms, separators, storage tanks, pipelines and
others.
Crude oil is usually sold at market price in its natural state at the wellhead after removal of water and
sediments, if any. Depending on the location of the oil field, the oil produced may be transported via
offshore tankers and/or pipeline to the refinery. On the other hand, natural gas may be flared, re+injected
to the reservoir for pressure maintenance, or sold, depending on the volume of reserves and other
considerations. Natural gas is commonly transported by pipeline. However, if the deposit is very large
and the market is overseas, the gas may be transformed into liquefied natural gas and transported using
specialized tankers.
The Company is at present a co+contractor in four SCs with the Philippine government. An SC grants the
contractor the exclusive right to explore, develop and produce petroleum resources within the contract
area. In the event of commercial production, the Government and the contractor share in the profit. SCs
grant the contractor an exploration period of seven years, with an option to extend for a limited number of
years. If the reserves found are deemed commercial, the SC allows a production period of twenty+five
years, with an option to extend.
44
The Company applies for or acquires interest in selected petroleum SCs covering areas usually in the
exploration phase. Due to the high risk and capital intensive nature of the business, the Company
normally participates in several consortia and takes a minority interest, usually below a 30% stake.
Subject to results of technical and risk+economic studies prior to exploratory drilling, the Company may
farm out or dilute its interest in exchange for financial consideration and/or non+payment of its pro+rata
share of forward exploration drilling costs. If a petroleum discovery is made, the Company will fund its
share of appraisal drilling and economic studies. Upon delineation of a commercial discovery, financing
for up to 70% of field development costs is available in the international market.
TA Petroleum is currently a participant in four (4) petroleum Service Contracts with the Government of the
Republic of the Philippines, namely: SC 6, SC 51, SC 69 and SC 55 (through its subsidiary, Palawan55
Exploration & Production Corporation).
TA Petroleum intends to maintain its participation in the aforementioned service contracts over the next
twelve (12) months. All these contracts are in the exploratory stage, i.e. without any commercial
production. The Company is carried in the expenditures related to the 2014 work programs under SC 6
Block A, SC 51, SC 69 and SC 55, and has a minimal share in the cost of the work program under SC 6
Block B.
Under SC 6 Block A, the consortium is currently conducting processing of the 500+sq. km. 3D seismic
data set that was acquired in the fourth quarter of 2013. Seismic interpretation will follow after the data
processing is completed.
Under SC 6 Block B, the consortium completed in January 2014 geological and geophysical evaluation of
three prospects. The consortium elected to enter the next five+year extension of the contract
(1 March 2014 to 28 February 2019. A work program consisting mainly of geophysical studies for the first
three years of the extension period had been committed to the DOE.
With respect to SC 51, the consortium was granted a six+month extension of the contract until
31 July 2014, during which geological, geophysical and drilling studies will be undertaken in light of the
results of drilling of Duhat+2 well, which was abandoned for safety and environmental reasons before
reaching the target. TA Petroleum was appointed as Operator upon DOE approval of the election of Otto
to withdraw from the SC.
Under SC 69, the consortium requested an extension of the contract until 31 December 2014 to allow the
formal transfer of interest of the Operator to the remaining parties following its notification of withdrawal in
the fourth quarter of 2013. The extension will enable the remaining parties to farm out their interests and
consider forward work program options.
With respect to SC 55, documentation of the exit of the Operator was completed in 21 January 2014. The
Operator’s withdrawal and transfer of its interests to the farmor was subsequently approved by the
Department of Energy. Otto Energy submitted a revised work program focusing on the drilling of the
Hawkeye prospect. The DOE approved the new work program in April 2014 and revised the schedule of
the remaining sub+phases. A farmout campaign commenced.
The Company also plans to acquire participating interests in at least two (2) additional local and/or foreign
petroleum contracts in 2014. Resource plays which could provide near term revenues are preferred. The
Company and its parent and sole shareholder, TA Oil, have sufficient funds to pursue these new ventures
at the initial exploration stage. The Company will raise money at a later stage if the results of initial
studies justify further exploration through drilling, or field development, as the case may be. The
Company does not expect to perform any product research and development, or to purchase or sell
45
significant plant or equipment in conjunction with its Plan of Operation for the next twelve (12) months.
Further, no significant change in the number of its employees is anticipated over the same period.
#--
# - "/-!*
"# ,0
!
"
'
%
TA Petroleum has the right to actively participate in the exploration for and/or extraction of natural
resources within the Service Contract through adequate rights which give the Company sufficient
influence in decisions over the said exploration for and/or extraction of natural resources. Under the
Service Contracts, the Company as the Contractor is the exclusive party to conduct petroleum operations
in the covered Contract Area. TA Petroleum, as a Contractor, is solidarily liable with other Contractors to
the Philippine government to perform the obligations under the Service Contracts. The Philippine
Government may require the performance of any or all obligations under the Service Contracts by any or
all of the Contractors. As a Contractor, TA Petroleum has the right and obligation to participate actively in
the exploration, development, and production of petroleum resources within the contract area. The
Service Contracts provide for minimum work commitments and minimum exploration expenditures which
must be complied with by any or all of the Contractors. TA Petroleum’s obligations under the Service
Contracts include delineation and operation of Production Area, preparation of the annual Work Program
and budget to carry out Petroleum Operations, including exploration, development and production, and,
determination of commerciality of Crude Oil or Natural Gas discoveries. TA Petroleum’s rights under the
Service Contracts include, among others, the right to export and sell its share of petroleum production in
the open market, subject to the obligation to supply a portion of domestic petroleum requirements.
A summary of the existing projects and the Service Contracts where TA Petroleum has participating
interests, as of date of this Prospectus are as follows:
"# ,0
6%
B" / G
5, C
66
B5, C
"0, "#
Eastern
Visayas
Offshore
West
Palawan
#-6.67%
6.82%
(carried+
free in up
to 2
wells)
!-
,-
8 July 2005
5 August
2005
"**- 0 ,/
-*
A
A, B
, #Otto Energy
Investments,
Cosco Capital
Inc.,
PetroEnergy
Resources
Corp.
Operator: Otto
Energy
Investments
Otto Energy
Philippines,
Otto Energy
Investments
" 1 "5 ,*
&)%' &)%9
Post+well
geological and
geophysical
studies continue.
Preparations for
drilling in 2014,
farmout
Operator: Otto
Energy
Investments
46
"# ,0
(
/"01
B" / G
5, C
(
/"01
B" /C
"0, "#
Northwest
Palawan
Northwest
Palawan
#--
!-
2.334%
(carried+
free in up
to 2
wells)
1 September
1973
14.063%
,-
1 September
1973
"**- 0 ,/
-*
A
A
, #Pitkin
Petroleum,
Philodrill Corp.,
PetroEnergy
Resources,
Philex
Petroleum,
Forum Energy
Philippines,
Anglo+
Philippine
Holding, Alcorn
Gold
Resources
Operator:
Pitkin
Petroleum
Philodrill Corp.,
Nido Petroleum
Ltd., Oriental
Petroleum &
Minerals Corp.,
Forum Energy
Philippines
Corp., Alcorn
Petroleum
&Minerals
Corp.
" 1 "5 ,*
&)%' &)%9
Processing of
new 3D seismic
data acquired in
late 2013
ongoing,
Geological and
Geophysical
studies ongoing
Operator:
Philodrill Corp.
(A
B" / G
5, C
Camotes
Sea,
Eastern
Visayas
6.00%
(carried+
free in 1
well)
7 May 2008
A
Otto Energy,
Frontier
Gasfields Pty.
Ltd.
Transfer of
interest to non+
withdrawing
parties; farmout
Operator: Otto
Energy
Note: A = Contractor provides all required services and technology funding. Contractor is entitled to a service fee out of production
equivalent to 40% of net proceeds. Net proceeds would refer to the balance of gross income after deducting Filipino participation
incentive allowance and operating expenses.
Note: B = The 6.82% interest in SC 55 is owned by Palawan55, a 69.35% owned subsidiary of TA Petroleum.
47
!
"
#
(
/"01
(
$
3D Seismic Survey in NW Palawan
/"01
3D Seismic Mapping
SC 6 covers three blocks located in Offshore Northwest Palawan, namely: Block A with 108,000 hectares,
and Block B with 53,300 hectares and the Cadlao production area. Both Blocks A and B have work
programs involving geological and geophysical studies. Block A's program also includes a new 3D
seismic acquisition survey that was completed in 2013. Processing of the new seismic data is in progress,
SC 6 grants the contractor the exclusive right to explore, develop and produce petroleum resources within
the contract area. The contractor assumes all exploration risks. In the event of commercial production, the
Government and the contractor share in the profit on a 60:40 basis. The exploration period is seven (7)
48
years, extendible by three (3) years. The production period is 25 years, extendible by 15 years. SC 6 was
awarded on 1 September 1973 and is valid until 28 February 2024 subject to certain conditions.
The DOE granted a 15+year extension of the term of SC 6 over the Cadlao Production Area, Block A and
Block B effective 1 March 2009. Under SC 6, once a production area is delineated, the contractor is
allowed to retain an additional 12.5% of the original contract area. The production area was termed as
Cadlao Production Area, whereas the retention areas, namely: Block A and Block B were delineated in
1988. The Cadlao oil field produced some 11 million barrels of oil from 1981 until 1990 when production
was suspended due to economic reasons. At an average crude oil price of US $20 per barrel, TA Oil
earned an estimated US $3.6 million from its royalty interest in the Cadlao Production Area. (Note: It is
difficult to convert the US $ earnings to its Philippine Peso equivalent because the exchange rate
changed considerably during the production period)
In 2010, TA Oil assigned its 1.65% royalty interest in the Cadlao Production Area under SC 6 to Peak
Royalties Limited (BVI) and recognized US$1.325 million income equivalent to Philippine Pesos 58.50
million using the exchange rate on the date of the assignment from such transaction. Cadlao oil field
commenced production in 1981. The field has been shut+in since 1990 when production was suspended
to allow transfer of its dedicated floating production facility to another field.
Block A and Block B were retained from the original contract area in 1988, subject to performance of
meaningful exploration work in either of the blocks in each contract year. Block A and Block B consortia
have complied with this conditionality by drilling exploratory and appraisal wells, and conducting various
geological and geophysical studies. An economically marginal field discovery (hitherto named “Octon
Discovery”) was made in Block A, but such field has not been developed to this date.
On 9 May 1988, an Operating Agreement was entered into by and among Balabac, Oriental, TA Oil and
Philodrill in respect of SC 6 Block A where Philodrill was appointed operator. This agreement is in full
force and effect during the term of SC 6.
On 7 March 2007, SC 6 Block A consortium entered into a Farm+In Agreement with Vitol GPC
Investments S.A. of Switzerland. Under this agreement, Vitol shall undertake, at its sole cost and risk,
geological, geophysical and engineering studies over a one (1) + year period. At the end of the study
period, Vitol will decide whether to acquire 70% participating interest in Block A. Vitol completed the first
phase of its technical due diligence over Block A and concluded that development of the Octon discovery
hinges on tie+back to Galoc production facilities. Following several extensions of the Farm+in Agreement,
Vitol informed the consortium in November 2010 that it is not exercising its option to acquire interest in
the block.
Pitkin Petroleum Plc. (U.K.) and the SC Block A consortium signed on 11 July 2011 a Farm+in Agreement
and a Deed of Assignment assigning 70% interest in the block to the former. In exchange for the
assignment of interest, Pitkin shall carry the consortium members in a 500 sq. km. 3D seismic program
and the drilling of two wells. On 2 September 2013, the Palawan Council for Sustainable Development
issued a Strategic Environmental Plan clearance for the programmed 500+sq km 3D seismic survey.
Pitkin started its 500+sq. km. 3D seismic survey last 5 October 2013.
Pitkin Petroleum, the Operator, completed on 7 November 2013 a 500 sq km 3D seismic survey pursuant
to the Farm+in Agreement.
The SC 6 Block B consortium members, excluding Nido Petroleum, signed on 4 February 2011 a Farm+in
Agreement with Peak Oil and Gas Philippines Limited (Australia) , Blade Petroleum Philippines Limited
(Australia) and Venturoil Philippines Inc. Under said Agreement, the farminees (Peak, Blade and
Venturoil) have the option to acquire 70% of the farmors’ participating interests, upon their completion of
an agreed technical work program. In the event the farminees exercise their option, they will shoulder all
the forward costs of the farmors up to the production of first oil in the block. Following the exercise of the
option by the farminees, the Parties signed on 2 December 2011 an Amended Deed of Assignment
49
transferring 64.5316% participating interest of the farmors to Peak, Blade and Venturoil. However, the
DOE disapproved in 22 July 2013 the Deed of Assignment due to the failure of the farminees to
demonstrate the required financial capacity.
On 13 September 2013, DOE approved the work program and budget for SC 6 Block B for the 5th year of
extension period. Geological and geophysical program commenced in October 2013 and was completed
in February 2014.
The partners in SC6 Block A and B and their respective participating interests are as follows:
SC6 Block A
Pitkin
PetroEnergy
Philodrill
Anglo
TA PETROLEUM
Forum
Philex Petroleum
Cosco
70.000% (Operator)
5.001%
15.495%
3.333%
2.334%
1.668%
1.668%
0.501%
Note: Under the Farm+in Agreement with Pitkin, Pitkin acquired 70% of TA Petroleum’s original
7.78% participating interest in exchange for Pitkin carrying the share of TA Petroleum in the cost
of a 500+km 3D seismic program and the drilling of two (2) wells.
SC6 Block B
Nido Petroleum Phils. Pty. Ltd.
Phoenix
TA Petroleum
Philodrill Corp.
Oriental A
Basic Petroleum & Minerals Inc.
Cosco (ex+Alcorn)
7.812%
28.125%
14.063%
21.875% (Operator)
14.063%
7.0310%
7.0310%
Note: 14.063% is the original interest of TA Petroleum in SC 6 Block B. The farmout to Peak,
Blade and Venturoil which would have reduced TA Petroleum’s interest by 70% did not
materialize because the proposed farm+in of the three (3) companies were disapproved by the
DOE.
50
%&
'
(
6% Drilling of Duhat+2 well at San Isidro, Leyte
SC 51 was awarded on July 8, 2005. The exploration period is valid for seven (7) years, extendible for
three (3) years, and the production period is 25 years. It covers an area of 444,000 hectares in the
Eastern Visayas region, consisting of a 204,000+hectare block in Cebu Strait and a 240,000+hectare block
mostly over the northwest peninsula of Leyte island and partly the adjoining offshore area. The block has
three (3) primary prospects and several leads. TA Oil initially had 33.34% participating interest. TA Oil
signed a Farm+In Agreement with Australasian Energy Ltd. and Ottoman Energy Ltd. on August 5, 2005,
thereby diluting its participating interest to 6.67% in exchange for a carry in costs of certain work
programs. Under said Farm+in Agreement, the farmees agreed to undertake and fund at their sole cost
and risk the minimum work program for the first exploration sub+phase shown below. Further, should the
farmees elect to drill an exploratory well in the contract area, they shall shoulder the farmors’ or farming
our parties’ share of the drilling costs associated with said well in exchange for 85% interest in SC 51.The
farmees subsequently merged their interests in Otto Energy Investments Ltd. (“Otto Energy”, formerly
“NorAsian Energy Ltd.”). The members of the consortium and their corresponding interests are Otto
Energy (Australia), 80%; Cosco Resources Corporation, 9.32%; TA Oil, 6.67% and PetroEnergy, 4.01%.
Otto Energy is the Operator.
The consortium committed to undertake a new 250km 2D seismic program over the Cebu Strait and an
engineering study of the Villaba – 1 sub+commercial gas discovery in offshore Northwest Leyte, within the
first 18 months of the contract term. The 2D seismic program was designed to pick the drilling location for
the Argao prospect and to upgrade a neighboring lead to drillable status. The Villaba engineering study
aimed to determine whether the sub+commercial Villaba gas discovery could be developed on a
stand+alone basis using minimalist options or whether additional reserves from neighboring prospects
would be necessary or enough to ensure commerciality. The partners have successive options to drill
exploratory wells during the balance of the seven (7) year+exploration period.
The consortium requested the DOE to amend the schedule of work commitments in view of the difficulty
of securing drilling rigs in the market. The approved amended exploration period is as follows:
1st sub+phase
8 July ‘05 + 8 Apr ‘07
2nd sub+phase
3rd sub+phase
4th sub+phase
8 Apr ‘07 + 8 Feb ‘08
8 Feb ‘08 + 8 Mar ‘09
8 Mar ‘09 + 8 Jan ‘10
acquire, process and interpret 261 km of 2D seismic
data and conduct Villaba Engineering Study
acquire, process and interpret 146 sq. km of 3D
drill one well (Argao)
drill one well
51
5th sub+phase
6th sub+phase
8 Jan ‘10 + 8 July ‘11
8 July ‘11 + 8 July ‘12
drill one well
drill one well
The DOE approved the consortium’s entry into the 3rd sub+phase of the exploration period (from
February 8, 2008 to March 7, 2009), which involves a commitment to drill one (1) exploratory well. The
consortium completed a Geo+Microbial Survey. The governor of Cebu province issued Executive Order
No. 10 on 29 May 2009 revoking Executive Order No. 9 which ordered the DOE to cease and desist from
conducting oil exploration surveys in the coastal waters of the municipalities of Argao and Sibonga.
Upon request of the consortium, the DOE agreed to amend the timetable of SC 51 as follows:
3rd sub+phase
4th sub+phase
5th sub+phase
6th sub+ phase
8 Feb ‘08 – 31 July ‘11
31 July ‘11 – 31 July ‘12
31 July ‘12 – 31 July ‘13
31 July ‘13 – 08 Mar ‘14
drill one well
drill one well
drill one well
drill one well
In early 2011, the joint operating agreement was amended to accommodate the entry of Swan Oil and
Gas Ltd. ("Swan"), and to split SC 51 into the North and South Blocks, after Otto Energy elected not to
participate in the South Block. In 2012, Swan failed to perform its obligation and was forced to give up its
interest in SC 51.
The remaining local partners of the South Block executed a farm+in option agreement with Frontier Oil
Corporation, giving the latter an option to acquire an 80% interest in the South Block, in exchange for
drilling the offshore Argao+1 exploratory well. Frontier did not exercise its option.
The consortium completed the drilling of an onshore well in Leyte in May 2011 without reaching the target
formation.
In 2012, Otto Energy acquired 100km of new high+quality 2D seismic data over the San Isidro anticline in
the North Block. The results of the new seismic data confirmed a large target, which could be tested
through the drilling of the Duhat+2 well in mid+2013. The data acquisition phase of said seismic program
commenced in May 2012 but was stopped by the unilateral one+month suspension of work by the
Chinese seismic contractor. Due to delays caused by this event and inclement weather in the field, the
consortium requested the DOE a six+month extension of the 4th sub+phase until 31 January 2013.
th
Upon request of the consortium, the DOE granted a further one+year extension of the 4 sub+phase to
31 January 2014.
Otto Energy spudded the Duhat+2 well in onshore northwest Leyte on 24 July 2013, but on 26 July 2013
abandoned the well without reaching the reservoir objective due to unexpected drilling problems. Otto
completed the demobilization for the Duhat+2 well last 30 August 2013 and is conducting post+well
studies. On behalf of partners, Otto Energy requested and was granted by its co+venturers an extension
of the current Sub+Phase to 31 July 2014, in order to undertake post+well geological, geophysical and
engineering studies.
TA Petroleum estimates that its share of additional drilling investments into the SC 51 operations will be
minimal inasmuch as it is carried in the 4th sub+phase expenditures and, should the consortium elect to
enter the 5th sub+phase, it will also be carried in drilling expenditures.
The partners in SC51 and their respective participating interests are as follows:
Otto Energy
Cosco
TA PETROLEUM
PetroEnergy
80.00% (Operator)
9.32%
6.67%
4.01%
52
%% )
#
66 3D Seismic Survey in Offshore West Palawan
SC 55 was awarded by the DOE on August 5, 2005. The exploration period is valid for seven (7) years,
extendible for three (3) years, and the production period is valid for 25 years. The members of the
consortium and their corresponding interests are Otto Energy (Operator) with 85% and TA Oil with 15%.
TA Oil has a Participation Agreement with the predecessors+in+interest of Otto Energy which provides that
the latter will shoulder TA Oil’s share of costs up to the drilling of the first exploratory well. In addition, TA
Oil has the option to acquire 5% interest from Otto Energy after the drilling of the first well under the SC.
SC 55 covers 900,000 hectares in offshore West Palawan. It is a deepwater block in the middle of a
proven regional oil and gas fairway that extends from the productive Borneo offshore region in the
southwest, to the offshore Philippine production assets northwest of Palawan. At that time, the block was
deemed to have one (1) giant prospect (with at least 500 million barrels mean resource potential) and a
number of leads. The consortium committed to undertake a work program consisting of a new 400 – km
2D seismic survey, processing and interpretation of 200 km of vintage 2D seismic data and 358 km of
gravity and magnetic data, within the first 18 months of the contract term. The partners have successive
options to drill up to four (4) wells during the balance of the seven (7) – year exploration period.
The DOE approved the consortium’s entry into the 2nd sub+phase of the exploration period, which entails
a commitment to drill one (1) ultra deepwater well. Processing and interpretation of 954 km of 2D seismic
date acquired in June 2007 were already completed, but due to non+availability of a suitable rig, the DOE
approved the consortium’s request to swap work commitments for the 2nd and 3rd sub+phases of the
exploration period to allow the drilling of the first commitment well by August 4, 2010 instead of
August 4, 2009.
The consortium requested and the DOE agreed to the substitution of a 2D + 3D seismic program for one
(1) ultra deepwater well commitment under the 3rd sub+phase of the exploration period (from 5 August
2009 to 5 August 2010), and deferment of the mandatory partial relinquishment of the contract area until
completion of the proposed substitute 2D + 3D seismic program. The consortium further requested and
the DOE approved a one+year extension of the 3rd sub+phase to 5 August 2011 following execution by
Otto Energy of a Farm+in Option Agreement with BHP Billiton Petroleum (Philippines) Corporation of
Canada (“BHP Billiton”) which provided for BHP Billiton’s funding of a new 3D seismic survey over the
area.
On 3 June 2010, TA Oil signed an Option Agreement with Frontier Gasfields Pty. Ltd. of Australia which
granted the latter the option to acquire the 5% interest that TA has the option to acquire from Otto Energy
after the drilling of the first well in the area.
53
On 3 February 2011, TA Oil signed an Agreement with Otto Energy assigning TA Oil’s 8.18%
participating interest to the latter in exchange for a carry in the costs of a second well in the block, should
Otto Energy elect to participate in said well. Estimated budget for drilling the second well is US $ 65
million or P2.86 billion at an exchange rate of US $ 1 = P44.
In December 2011, BHP Billiton acquired 60% participating interest in SC 55 from Otto Energy and
committed to drill one deepwater well at its sole cost within the 4th sub+phase.
The consortium elected to enter the 4th sub+phase which entails a commitment to drill one deepwater well
by 5 August 2012.
The revised work schedule is shown below:
Sub+phase
4
5
Date
August 2011+ August 2013
August 2013+ August 2014
Work program
1 deepwater well
1 deepwater well
The DOE granted a one+year extension of the 4th sub+phase until 5 August 2013 to enable BHP Billiton to
procure a suitable drilling rig that could drill an identified deepwater prospect. On 3 May 2013, BHP
Billiton filed a Force Majeure notice with the DOE due to significant delays in obtaining a clearance from
the Palawan Council for Sustainable Development for the drilling of the Cinco+1 well.
On 4 June 2013, the Sangguniang Panlalawigan of Palawan voted to favorably endorse the proposed
Cinco+1 drilling to the Palawan Council for Sustainable Development (“PCSD”). The PCSD approved the
issuance of the Strategic Environmental Plan Clearance (“SEP”) clearance for the drilling of Cinco+1 well
but BHP Billiton sought amendment and clarification on certain conditions set by PCSD.As at 30 October
2013, BHP Billiton received the amended SEP clearance and requested the DOE a 14+month extension
of the current Sub+Phase considering the length of the Force Majeure period.
In the first week of November 2013, BHP Billiton verbally informed the partners that it has decided not to
participate in the drilling of the Cinco+1 well. In March 2014, the DOE approved the transfer of
BHP Billiton’s interest to Otto Energy Philippines, Inc. Otto Energy submitted a revised work program
focusing on the drilling of the Hawkeye prospect. The DOE approved the new work program in April 2014
and revised the schedule of the remaining sub+phases as follows:
Sub+phase
4
5
Work Program and Budget
Drill 1 deepwater well @ US$ 3 MM
Drill 1 deepwater well @ US$ 3 MM
Revised Work Schedule
6 August 2011 – 23 December 2014
23 December 2014 – 23 December 2016
The Operator, Otto Energy, is currently undertaking preparations for the drilling of a deepwater
exploratory well.
TA Petroleum's stake in SC 55 is held through Palawan55. TA Petroleum owns 69.35% of Palawan55,
while the remaining 30.65% is owned by TA Oil.
TA Petroleum believes that its share of any additional investments in SC 55 through Palawan55 will be
minimal in 2014 due to the latter’s carried position.
The partners in SC55 and their respective participating interests are as follows:
Otto Energy Philippines
Otto Energy
Palawan55
60.00%
33.18% (Operator)
6.82%
54
*
(A 3D Seismic Survey in the Camotes Sea
SC 69 covers an area in the Camotes Sea, Eastern Visayas. The DOE awarded SC 69 (formerly, Area 8
of the 2006 Philippine Energy Contracting Round) on 7 May 2008 to a consortium composed of TA Oil
(with 30% interest) and Otto Energy Philippines Inc. (“Otto Philippines”, formerly NorAsian Energy
Philippines, Inc.) (with 70% interest). SC 69 has an exploration period of seven (7) years, divided into five
(5) sub+phases and extendible for three (3) years, and a production period of 25 years. While the area is
under+explored, initial indications show that it has significant petroleum potential in view of gas
discoveries in onshore Northern Cebu and offshore Northwest Leyte.
The consortium commenced a geological and geophysical review and reprocessing of some 3000 km of
vintage 2D seismic data in fulfillment of work obligations under the 1st sub+phase of the exploration
period (from 7 May 2008 to 6 May 2009).
The consortium elected to enter the 2nd sub+phase of the exploration period (from 7 May 2009 to
6 November 2010), which entails a commitment to conduct either a minimum of a 50+square kilometer
3D seismic survey or a minimum of 750+line kilometer 2D seismic survey, with expected expenditures of
US$2 million for the 3D seismic survey or US$1 million for the 2D seismic survey. The DOE approved
extension of the 2nd sub+phase until 7 February 2011 to enable completion of interpretation of the newly
acquired 900 km of 2D seismic data.
On 3 June 2010, TA Oil signed a Farm+in Option Agreement with Frontier (“Frontier”) which granted the
latter the option to acquire 15% of TA Oil’s interest in SC 69. Frontier exercised its option on 3 February
2011 for a total consideration of US$ 395,000. The consortium elected to enter the 3rd sub+phase
(7 February 2011 to 7 August 2012) which entails a minimum commitment of either a 50 sq. km. of
3D seismic survey or one exploratory well and minimum expenditures of $2 MM or $3 MM, respectively.
On 3 February 2011, TA Oil signed an Agreement with Otto Philippines assigning an additional 9% of
TA Oil’s participating interest to the latter in exchange for reimbursement of certain past costs, a partial
carry in the cost of the 3D seismic program and a full a carry in the costs of the first well in the block,
should Otto Philippines elect to participate in said well. The total consideration for the reimbursement of
past costs and partial carry in the cost of the 3D seismic program amounts to US $313,000.
Otto Philippines completed a 229 sq. km. 3D seismic survey in June 2011. Processing of the seismic
data was completed in April 2012. Seismic interpretation confirmed the presence of two sizeable reef
structures: Lampos and Lampos South; and a third smaller prospect, Managau East.
55
On 4 April 2013 the DOE granted the consortium’s request for 9+month extension of the 3rd sub+phase to
7 May 2013, and a subsequent extension to 6 November 2013, to enable completion of seismic
interpretation work and pre+drill studies. On 23 August 2013, Otto confirmed that it did not intend to enter
Sub+Phase 4 of SC 69.
Otto Energy Philippines notified the Company and Frontier of its withdrawal in SC 69 last 4 October 2013.
The Company and Frontier subsequently jointly requested the DOE a six+month extension of the
7 October 2013 deadline to elect to enter the next exploration Sub+Phase, which starts on
7 November 2013. Due to the length of time needed for the transfer of the participating interest of
Otto Energy Philippines, TA Petroleum and Frontier requested a further extension of the current
Sub+Phase to 31 December 2014.
TA Petroleum estimates that its share of costs in SC 69 in 2013 will be minimal.
The partners in SC69, Camotes Sea and their respective participating interests are as follows:
Otto Energy Philippines
Frontier
TA PETROLEUM
5
79.00% (Operator)
15.00%
6.00%
Upon approval of the exit of Otto Energy Philippines, the resulting participating interests shall be TA
Petroleum, 50% and Frontier, 50% with Frontier taking over Operatorship.
+,
-.
#
,
TA Petroleum may acquire participating interests in the following Service Contracts :
%/ +
"
!
"
#
$
SC 50 was awarded on 11 March 2005 to the predecessors+in+interest of Frontier Energy Ltd. (“FEL”) and
a royalty interest holder, RGA Resources, Inc., covering a 1.280 sq. km. block in the Northwest Palawan
petroleum province.
The block hosts two (2) undeveloped oil discoveries made in 1991 and 1992, respectively, by Petrocorp
Ltd./Fletcher Challenge, Ltd, namely: the Calauit and Calauit South finds. PNOC+Exploration
Corporation re+entered the Calauit+1B discovery well in 1997 and conducted extended tests, flowing up to
9,500 barrels of oil per day (bopd), but with significant amounts of water. Calauit South+1 flowed
3,286 bopd when tested in 1992. The oil reservoir in both fields is the fractured Nido Limestone, which is
the main producing reservoir in other nearby fields.
FEL is planning to develop the Calauit oilfield using recent technical innovations. This will involve the
drilling of two (2) horizontal wells which will be produced via a Mobile Offshore Production Unit (MOPU)
and Floating Storage and Offtake (FSO). Total project cost is estimated at around US$ 50 million. This
excludes the US$ 7.5 million that have already been spent by FEL under SC 50. Drilling operations are
th
expected to commence in the 4 quarter of 2014.
TA Petroleum has agreed to acquire 10% participating interest in SC 50 from FEL.
5
Otto’s remaining 70% will be distributed among TA Petroleum and Frontier Oil. The final interests will be agreed on at a later date.
56
%0
(
#
$
SC 52 was awarded on 8 July 2005 to a consortium composed of Frontier Oil Corporation (“Frontier Oil”),
Frontier and E. F. Durkee and Associates, Inc. It covers a 96,000+hectare onshore area in Cagayan
province.
The block hosts the Nassiping Dome prospect located in Gattaran, Cagayan, about 50 km north of
Tuguegarao. The Nassiping+2 well was drilled by Petro+Canada in 1994 to a depth of 3,725 meters and
was abandoned due to drilling problems. The well was not flow tested although gas shows were
recorded then. The first exploratory well on the prospect, the Nassiping+1 well drilled in 1961, also
yielded gas shows. The Cagayan Valley is a proven hydrocarbon province with the PNOC’s San Antonio
gas field in Isabela producing 3.6 billion cubic feet of gas from 1994 until 2008.
TA Oil and Frontier Oil executed on 12 January 2012 a Farm+in Option Agreement which granted
Trans+Asia the option to acquire 10% participating interest in SC 52 from Frontier Oil, which may be
exercised after completion of re+entry and testing of the Nassiping+2 well.
Frontier Oil re+entered the Nassiping+2 well in February 2012 to evaluate gas shows above 3,000 meters
that were encountered in the well. The well flowed gas to the surface, but at unstable rates. Frontier Oil
suspended the well for future re+entry after confirming the presence of movable gas in the target interval.
Technically, the Nassiping+2 Re+entry would be classified as a discovery well.
TA Oil and Frontier Oil signed an Amendment Agreement extending the former’s option to 90 days after
completion of programmed re+testing operations on the Nassiping+2 well.
The Department of Energy approved the consortium’s entry into Sub+Phase 4 (8 July 2012 to 8 July
2013) with the Nassiping+2 Stimulation and Testing Program as work commitment. This Stimulation and
Testing was intended to be an appraisal of the gas discovery made earlier.
Frontier Oil attempted to perform and acid stimulation and testing program on the zones of interest in
November 2012, but suspended operations in December 2012 due to down hole equipment problems.
Consequently, Frontier Oil elected to enter Sub+Phase 5 (ending July 2014) with the commitment to
deepen the Nassiping+2 well and test all prospective gas+bearing intervals in the borehole.
TA Oil and Frontier Oil signed a Second Amendment to their Farm+in Option Agreement in July 2013 that
extended the option period and expanded the coverage of TA Oil’s option to include the untested deeper
prospective gas+bearing intervals identified in the well.
In December 2013, Frontier Oil signed a drilling rig contract for the deepening and testing of the
Nassiping+2 well. Preparations for the drilling are underway.
Pursuant to the amended Farm+in Option Agreement, TA Oil shall evaluate the results of the operations
within 90 days of completion and decide whether to exercise its option or not. If the option to acquire
10% interest in SC 52 is exercised, TA Oil will cause Frontier Oil to assign said interest directly to
TA Petroleum.
G
#
%% 1,
2#
.
,
Palawan55 is an upstream oil and gas company which holds participating interest in SC 55.
57
The material agreements are mentioned in a preceding section entitled “Interests in Petroleum
Contracts.”
In addition, TA Petroleum is a party to Joint Operating Agreements under SC 6 Block A, SC 6 Block B,
SC 51, SC 55 (through Palawan55) and SC 69. Joint Operating Agreements govern the relationship of
the parties and the conduct of joint operations under the SC.
3
.
4
5
#
.
5 + 6
Under this Memorandum of Agreement, TA Oil agreed to assign to TA Petroleum, a Subsidiary of TA Oil,
the SC Participating Interests of TA Oil as follows:
1.
2.
3.
4.
3
Participating interest under SC 51;
Participating interest under SC 6 with respect to SC6 Block A; and
Participating interest under SC 6 with respect to SC6 Block B.
.
4
5
+
#
%%6
Under this Memorandum of Agreement, TA Oil agreed to assign to Palawan55, a Subsidiary of TA Oil,
the SC Participating Interests of TA Oil under SC 55.
7
4
5
#
.
5
+ 6
Under this Deed of Assignment, TA Oil assigned to TA Petroleum, a Subsidiary of TA Oil, the SC
Participating Interests of TA Oil as follows:
1.
2.
3.
4.
7
Participating interest under SC 6 with respect to SC6 Block A; and
Participating interest under SC 6 with respect to SC6 Block B.
4
5
+
#
%%6
Under this Deed of Assignment, TA Oil assigned to Palawan55, a Subsidiary of TA Oil, the SC
Participating Interests of TA Oil under SC 55.
58
/ ,#4 , #4! 2 3- 3 -8
The information presented in this section has been extracted from publicly available documents that have
not been prepared nor independently verified by the Company, the Financial Adviser or any of their
respective affiliates or advisers in connection with the Listing.
- "/-!* 7./" , "# ,#4
"4!0 "#
Crude oil and natural gas, collectively referred to as “petroleum”, are natural deposits of hydrocarbons
derived from organic material deposited and buried in the earth’s crust millions of years ago. Crude oil
can be refined to produce petroleum products such as transportation, domestic and industrial fuels,
lubricants, asphalt and petrochemicals. Natural gas can be used for power generation, industrial,
domestic and transportation fuel, and as petrochemical feedstock.
Petroleum exploration in the Philippines dates back to 1896 with the drilling of Toledo+1 in Cebu Island by
Smith & Bell. Exploration activities increased from the 1950s to 1970s, under Republic Act No. 387,
known as the "Petroleum Act of 1949" which ushered in the era of the concession system.
The current Service Contract system was introduced in 1973 with the enactment of Presidential Decree
No. 87, known as the "Oil Exploration and Development Act of 1972". Under the Service Contract system,
the service contractor undertakes to perform all petroleum operations in the contract area and provide all
necessary services, technology and financing for such operations at its sole cost and risk. In
consideration for its performance of its obligations as a service contractor, the contractor is entitled to a
share in petroleum revenues in the event of commercial production.
The extensive exploration program in the 1970s resulted in several oil and gas discoveries in the West
Palawan basins. Nido+1 well, drilled by Philippine Cities Service in 1976, was the first oil discovery in the
Northwest Palawan basin. Several small fields, all located in offshore Northwest Palawan, were
subsequently developed and produced.
In 1989, relatively large deposits were discovered in the deepwaters off Palawan. Occidental Petroleum
discovered the Camago gas field. In 1990, Shell discovered the extension of the Camago deposit and the
combined accumulation became known as the Malampaya gas field, the largest natural gas find in the
country to date. The Malampaya gas field commenced production in late 2002, providing fuel for
2,700 MW of gas+fired power generation in the Luzon grid.
At the end of 2005, the estimated petroleum resources of the Philippines totaled 456 million Barrels of
Fuel Oil Equivalent (BFOE). This consists of 25 million barrels of oil, 2,135 billion cubic feet of gas and
54 million barrels of condensate. These petroleum resource estimates cover the sixteen sedimentary
basins situated from the Cagayan Valley Basin in the north down to the Agusan+Davao Basin in the south
as well as the Northwest Palawan Basin and the Sulu Sea Basin along the western flank of the
archipelago. These basins are located in both offshore and onshore areas.
Under Presidential Decree No. 87, petroleum service contractors are entitled to the following incentives:
Service fee of up to 40% of net production
Cost reimbursement of up to 70% gross production with carry+forward of unrecovered costs
Filipino Participation Incentive Allowance of up to 7.5% of the gross proceeds for SC with
minimum Filipino participation of 15%
Exemption from all taxes except income tax
Income tax obligation paid out of government's share
59
Exemption from all taxes and duties for importation of materials and equipment for petroleum
operations
Easy repatriation of investments and profits
Free market determination of crude oil prices, i.e., prices realized in a transaction between
independent persons dealing at arms+length
Special income tax of 8% of gross Philippine income for subcontractors
Special income tax of 15% of Philippine income for foreign employees of service contractors and
subcontractors
There are presently 27 active petroleum SCs in the Philippines:
.- , "
No.
1
2
3
4
(
(
(
%9
5
'?
6
7
8
9
10
11
12
13
14
15
'>
9)
99
9?
9A
6)
6%
6&
6'
69
Blade Petroleum
Pitkin Petroleum Plc.
The Philodrill Corp.
The Philodrill Corp. / Galoc Production Co./ Pitkin
Petroleum Ltd.
Philippine National Oil Co. – Exploration
Corporation
Shell Philippines Exploration B. V.
Forum Exploration Inc.
Gas To Grid Pte. Ltd.
Philippine National Oil Co. – Exploration Corp.
China International Mining Petroleum Co., Ltd.
Frontier Oil Corporation
Otto Energy Investments Ltd.
Pitkin Petroleum Ltd.
Nido Petroleum Phils. Pty. Ltd
16
66
BHP Billiton Petroleum (Philippines) Corporation
17
18
6(
6?
19
6>
Exxonmobil Exploration & Production Phils. B. V.
Philippine National Oil Co. – Exploration Corp./
China
National Offshore Oil Corp. Int'l
Nido Petroleum Phils. Pty. Ltd.
20
6A
BHP Billiton Petroleum (Philippines) Corporation
21
22
23
()
(&
('
24
25
(9
(A
Shell Philippines Exploration B. V.
Palawan Sulu Sea Gas Inc.
Philippine National Oil Co. – Exploration Corp. /
Nido
Petroleum Phils. Pty. Ltd.
Ranhill Bhd.
Otto Energy Phil. Inc.
26
27
?)
?&
Polyard Petroleum International Co. Ltd.
Forum (GSEC101) Ltd.
"0, "#E
-, B+-0 , - C
NW Palawan / 3,397.186
NW Palawan / 108,146.587
NW Palawan / 53,293.945
NW Palawan / 70,887.52
Cagayan / 36,000.00
NW Palawan / 83,000
North Cebu / 458,000.00
Central Cebu / 75,000
Offshore Mindoro / 1,466,700
South Cebu / 265,000
Calauit, NW Palawan / 128,000
East Visayan Basin / 332,000
Piat San Jose, Cagayan / 96,000
Onshore Mindoro / 660,000
NW Palawan (Area A / B =
401,616.15 /
West Palawan Ultra+Deepwater /
900,000
Sulu Sea / 862,000
Calamian Block, NW Palawan /
712,000
West Calamian Block, NW
Palawan /
1,344,000
West Balabac, SW Palawan/
1,476,000
NE Palawan / 1,008,000
East Palawan / 1,302,000
SW Palawan / 1,056,000
Sulu Sea / 1,264,940
Visayan Basin / 704,000
Central Luzon Basin / 684,000
Reed Bank / 1,063,000
60
An additional 15 areas were offered in 2011 by the DOE on a competitive basis under the fourth
Philippine Energy Contracting Round, of which the following areas have so far been awarded:
No.
1
2
3
4
5
#4!
-,
5
7
(SC73)
1
14
4
.- , "
Pitkin Petroleum / Philodrill Corp.
Otto Energy Philippines Inc.
"0, "#E -, B+-0 , - C
NW Palawan / 424,000
Mindoro – Cuyo / 844,000
Planet Gas
Loyz Oil
Philex Petroleum / PetroEnergy / PNOC Exploration
Corp. (PNOC+EC)
Cagayan / 544,000
East Palawan / 983,900
NW Palawan / 616,000
2 "*.-
"#
Petroleum SCs are awarded by the DOE through a competitive bidding process. Proposals are evaluated
based on Department Circular No. DC2006+12+0014 as amended by DC2009+04+0004 and DC+2010+03+
0005. Indicative weighing factors governing the selection criteria published by the DOE for the fourth
Philippine Energy Contracting Round launched in June 2011 are as follows:
Criteria
Work Program
Financial qualifications
Technical qualifications
Legal qualifications
Key Elements
– Resource
potential
and
exploration
approach
– Work commitment
– Development concepts
– Evidence of available funds
– Finance track record
– Experience and track record
– Completeness and validity of required legal
documents
Weight in Percent
30%
30%
30%
10%
While there is competition in the acquisition of petroleum SCs, the significant financial commitments and
technical risks also provide opportunities for partnership, especially between local and international
companies. Under an SC, a substantial financial incentive, the Filipino Participation Incentive Allowance
or FPIA, is given to consortia with at least 15% aggregate Filipino equity. Thus, many international
companies invite local companies to join their venture to benefit from the said incentive.
The other active foreign and domestic petroleum exploration and production companies in the Philippines
include Shell Philippines Exploration B.V., PNOC EC, BHP Billiton Petroleum (Philippines) Corporation,
Otto Energy Investments Limited, Pitkin Petroleum Plc., Philex Petroleum and the various consortium
partners mentioned in “Description of Business.”
The success of the Company’s petroleum and gas business is highly dependent on the Company’s ability
to secure exclusive rights to explore and develop resources. The Company faces threats to such
exclusivity.
The Company is currently one of the more active players in the Philippines in terms of exploration activity
and believes it can effectively compete in the industry on the basis of its strengths and strategies which
are described in the following section.
The Company aims to become a leading Philippine upstream oil and gas company by leveraging the
strengths and pursuing the strategies outlined below:
61
-#5 +
The Company has an interest of 6.82% (through its 69.35% share in Palawan55) in SC 55. Large
prospects have been delineated in the SC 55 contract area.
The Company has minority interests in a number of SCs which present opportunities and have attracted
farm+in interest from other foreign oil companies.
Through TA Oil, the Company has been in business for more than 40 years and, in the process has
earned a good reputation as a prudent operator with strong management and technical teams highly
regarded in the energy industry. TA Oil has gained experience over the years as it was part of the
consortium that produced oil from the Cadlao and Tara fields in offshore Palawan in the 1980s and in the
North Matinloc field, also in offshore Palawan, in the 1990s. The Parent Company also drilled for oil in
Indonesia and the United States. The Company’s President and CEO Dr. Francisco Viray, former DOE
Secretary and former President of the National Power Corporation, together with the rest of the
Company’s management team, have had extensive on+the+job experience in the Philippine energy sector.
Besides in+depth knowledge of the Philippine business and regulatory environment, the Company's
management has also developed positive relationships with key industry participants. The Company
strongly believes that its management team has demonstrated the ability to manage the business
successfully through economic downturns and periods of oil and electricity price volatility. This extensive
experience provides the Company with a strong base to manage its present and upcoming projects.
As a Philippine entity, the Company may ensure entitlement of a consortium to the FPIA in accordance
with the fiscal terms of petroleum SCs in the Philippines. This makes the Company an ideal joint venture
partner of foreign oil and gas companies in petroleum and gas SCs.
, -5 The Company will continue to create and pursue a spread of upstream opportunities covering various
risk+reward scenarios, success which would lead to a significant, sustained contribution to the revenue
stream of the Company.
The Company has forged new partnerships and expanded existing alliances with foreign and local
companies that share its investment strategy and who can provide capital and technical expertise.
Exploration partners include foreign groups such as BHP Billiton Petroleum and Otto Energy Investments
Ltd of Australia, as well as local outfits such as PetroEnergy and Frontier Oil. By joining exploration
consortia as a minority partner and/or diluting its participating interest in exchange for a ‘carry’ in
expenditures, the Company reduces the inherent risks in the business while maintaining any potential
from the projects and increases the number of SC areas it can get involved in. This will significantly
conserve capital and manage risks until production.
62
The Company and the operators of assets in which the Company has direct or indirect interest, have
contracts with third party suppliers of services. The Company’s business, however, is not dependent on
any single supplier or a limited number of suppliers, and normally procures required third party services
through a competitive bidding process.
TA Petroleum does not have any petroleum production at this time.
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other
party or exercise significant influence over the other party in making financial and operating decisions.
Parties are also considered to be related if they are subject to common control. In considering each
possible related party relationship, attention is directed to the substance of the relationship and not
merely its legal form.
Outstanding balances at year+end are unsecured and settlement occurs in cash throughout the financial
year. There have been no guarantees received or provided for any related party receivables or payables.
As at 31 December 2013 and for the three months ended 31 March 2014, the Company has not recorded
any impairment of receivables on amounts owed by the related parties. The assessment is undertaken
each financial year through examining the financial position of the related party and the market in which
the related party operates.
Company
T+O Insurance
Brokers, Inc.
Insurance
PHINMA
Management and
professional
fees
Amount/
Volume
P
= 1,122
201,600
Amount/
Volume
Company
Araullo University
Advances to a
P
= 3,700,000
related party
TA Oil
Advances from a
related party
Management and
professional fees
1,339,793
156,800
For the Three Months Ended March 31, 2014
Outstanding
Nature
Balance
Terms
Conditions
Insurance
Management
fees
P
=–
On demand;
noninterest+bearing
Unsecured
–
30+60 day terms;
noninterest+bearing
Unsecured
As at and for the Year Ended December 31, 2013
Outstanding
Nature
Balance
Terms
Conditions
Advances
P
=–
On demand;
noninterest+bearing
Unsecured,
no impairment
Advances
–
Unsecured
Professional
fees
–
On demand;
noninterest+bearing
30+60 day terms;
noninterest+bearing
Unsecured
63
PHINMA
Management and
professional fees
Company
TA Oil
Advances to a
related party
Company
TA Oil
Advances to a
related party
P
= 806,400
Amount/
Volume
P
= 8,666,268
–
Management
fees
30+60 day terms;
noninterest+bearing
Unsecured
Outstanding
Nature
Balance
Terms
Conditions
Advances
P
= 8,666,268
On demand;
noninterest+bearing
Unsecured,
no impairment
Amount/
Volume
Outstanding
Nature
Balance
Terms
Conditions
P
= 36,251
Advances
P
=–
On demand;
noninterest+bearing
Unsecured
In 2013, TA Oil fully paid the outstanding advances to the Company as at 31 December 2012. There
were no outstanding advances as at 31 December 2013 and for the three months ended 31 March 2014.
In 2011, the BOD approved the application of the Company’s advances from the Parent Company
amounting to P
= 36,251 against subscription receivable.
The Company currently has no registered patents, copyrights, licenses and franchises. SCs are
discussed under the heading “Statement of Active Business Pursuits.”
Compliance with petroleum SCs is primarily monitored through the submission of the annual work
program and budget to the DOE and their audit in relation to work and financial commitments under the
particular SC. The annual work program and budget for a contract area must be submitted before the end
of each contract year and would set forth the petroleum operations to be carried out during the ensuing
contract year. The proposed annual work program and budget must be approved by the DOE. The
approved annual work program and the budget serve as the contractor’s guide in conducting the
petroleum operations over the contract area.
Should petroleum be discovered and deemed as a potential commercial deposit, the contractor submits
to the DOE an Appraisal Work Program for approval, providing in detail the appraisal work and timetable
for such discovery. Upon approval, the contractor must carry out the operations and thereafter prepare a
detailed report on the appraisal of the commerciality of the discovery. Should the contractor and the DOE
decide that the oil field contains petroleum in commercial quantity, the contractor submits an Overall
Development Program to the DOE for its approval.
Operation of the field must be done in accordance with accepted good oil field practices using modern
and scientific methods to enable maximum economic production of petroleum. Moreover, the contractor is
required to: (a) promptly furnish the DOE with geological and other information, data and reports relative
to the petroleum operations, (b) maintain detailed technical records and accounts of the petroleum
64
operations, (c) maintain all meters and measuring equipment in good order and allow access to the
exploration and production sites and operations to inspectors authorized by the DOE, (d) allow examiners
of the Bureau of Internal Revenue (BIR) and other representatives authorized by the DOE full access to
accounts, books and records relating to petroleum operations, and (e) post a bond or other security in
favor of the Philippine government conditioned upon the contractor’s faithful performance of its obligations
under an SC.
The Annual Exploration Work Program for the petroleum contracts have been submitted to and approved
by the DOE.
8 5 !9 9+'
!3 !5
9
5 +!
Various laws and regulations in the Philippines regulate different aspects of the Company’s business.
Below is a discussion of some of the principal laws that affect the Company’s business.
+
+-
9
1,
/ 7./" , "# ,#4
-3-/".*-#
0 "$ %A?&
Presidential Decree (“P.D.”) No. 87, as amended, aims to promote the discovery and production of
indigenous petroleum through the use of government or private resources. Pursuant to this law, the
government may, on its own, undertake the exploration and development of petroleum, or it may
undertake the same through SCs entered into with contractors (whether acting alone or in consortium
with others) who must be technically competent and financially capable as determined by the Petroleum
Board (now the DOE). SCs are executed after public bidding or concluded through negotiations.
As provided in the said law, the government will oversee the management of the operations contemplated
in the SC. The contractor, on the other hand, will be required to, among other duties and responsibilities,
(i) provide all necessary services and technology, (ii) provide the requisite financing, (iii) perform the
exploration work obligations and program prescribed in the SC, and (iv) once petroleum in commercial
quantity is discovered, operate the field on behalf of the government in accordance with accepted good oil
field practices using modern and scientific methods to enable maximum economic production of
petroleum; and (v) assume all exploration risks such that if no petroleum in commercial quantity is
discovered and produced, it will not be entitled to reimbursement. The contractor may market petroleum
either domestically or for export, subject to supplying the domestic requirements of the Republic of the
Philippines on a pro+rata basis, as required by law.
Pursuant to the said law, the contractor is entitled to a service fee which will not exceed 40% of the
balance of the gross income after subtracting the Filipino Participation Incentive Allowance (if any) and
operating expenses recovered pursuant to the provisions of the law. The Filipino Participation Incentive
Allowance is the government subsidy granted by the DOE to contractors where Philippine citizens or
corporations have a minimum participating interest of 15%. The amount of the subsidy depends upon the
scope of Filipino participation. Such Filipino participation incentive as well as certain operating expenses
(including amortization and depreciation) may be deducted by the contractor from its gross income.
In addition to the above, the contractor enjoys benefits, which include: (i) exemption from all taxes except
for income tax; (ii) exemption from tariff duties for all machinery, equipment and spare parts necessary for
petroleum operations, subject to certain conditions; and (iii) entry of foreign technical and specialized
personnel to be employed by the contractor, provided approval of the DOE is obtained.
The exploration period for each SC is seven years, extendible for three years and for another year if
petroleum is discovered by the end of the 10th year for the purpose of determining whether it is in
65
commercial quantity. If petroleum in commercial quantity has been discovered, the contractor may retain
after the exploration period and during the effectivity of the contract 12.5% of the initial contract area in
addition to the delineated production area(s), subject to payment of rentals by the contractor. If petroleum
in commercial quantity is discovered during the exploration period in any area covered by the contract,
the contract with respect to said area will remain in force for the remainder of the 10+year exploration
period and for an additional period of 25 years, renewable for a period not to exceed 15 years.
It is mandated that the SC provide for the compulsory relinquishment of 25% of the initial area after five
years from the effective date of the contract, but in the event that the contract is extended from 7 to 10
years, there must be an additional relinquishment of 25% of the initial area after seven years. This
requirement shall not include, however, the area designated as dedicated to production.
Philippine environmental laws are primarily implemented by the Philippine Department of Environment
and Natural Resources (DENR), which is responsible for carrying out the state’s constitutional mandate to
control and supervise the exploration, development, utilization and conservation of the country’s natural
resources.
Philippine environmental law compliance would include compliance with: (1) the terms and conditions of
the Environmental Compliance Certificate issued by the DENR certifying that based on the proponent’s
representations and the DENR’s review, the proposed project or undertaking will not cause a significant
negative environmental impact and that the proponent has complied with all the requirements of the
Environmental Impact Statement System; (2) the terms and conditions of a permit to discharge, which
allows the discharge of regulated effluents (i.e., discharges from known sources, such as manufacturing
plants, industrial plants, including domestic, commercial and recreational facilities which traverse to the
bodies of waters), pursuant to the Philippine Clean Water Act of 2004 and the Revised Effluent
Regulations of 1990; (3) the guidelines imposed by the Marine Pollution Decree of 1976, which prohibits,
among others, the discharging or dumping oil, noxious gaseous and liquid substances, and other harmful
substances from or out of any ship, vessel, barge or any other floating craft, or other man+made
structures at sea, by any method, means or manner into or upon the territorial and inland navigable water
of the Philippines; (4) the Water Code of the Philippines, which allows the dumping of tailings from mining
operations into rivers and waterways upon prior approval by the National Water Resources Board; and (5)
the Philippine Clear Air Act of 1999, which seeks to prevent air pollution by controlling emission,
greenhouse gasses that could stimulate global warming, and, through the DENR, imposing emission fees
from industrial dischargers through its emission permitting system.
The Company has spent minimal amounts for research and development activities during the last three
fiscal years, which amounted to an insignificant percentage of revenues.
As far as the Company is aware, it has complied with all environmental regulations with regard to the
SCs.
The Company is managed by its directors and executive officers with finance, legal and technical support
provided by TA Oil and specialist consultants. The day+to+day operations and administration of assets
66
operated by the Company are handled by the employees of TA Oil. As of 31 December 2013, TA Oil had
seven (7) management and nil operations and administrative regular employees. In the ensuing
12 months, the Company anticipates to have two (2) additional employees. The Company and its
subsidiary have no collective bargaining agreement with its employees, and have not experienced any
strikes from its employees. There are no supplemental benefits or incentive arrangements with
employees.
67
A summary of the existing projects and the Service Contracts where TA Petroleum has participating
interests, as of date of this Prospectus are as follows:
"# ,0
"0, "#
#--
!-
,-
"**- 0 ,/
-*
A
, #-
" 1 "5 ,*
&)%' &)%9
Post+well
geological and
geophysical
studies
continue.
Preparations
for drilling in
2014, farmout
6%
B" / G
5, C
Eastern
Visayas
6.67%
8 July
2005
66
B5, C
Offshore
West
Palawan
6.82%
(carried+
free in up
to 2
wells)
5 August
2005
(
/"01
B" / G
5, C
Northwest
Palawan
2.334%
(carried+
free in up
to 2
wells)
1
September
1973
A
Pitkin Petroleum,
Philodrill Corp.,
PetroEnergy
Resources, Philex
Petroleum, Forum
Energy Philippines,
Anglo+Philippine
Holding, Alcorn
Gold Resources
Processing of
new 3D
seismic data
acquired in late
2013 ongoing,
(
/"01
B" /C
Northwest
Palawan
14.063%
1
September
1973
A
Geological and
Geophysical
studies
ongoing
(A
B" / G
5, C
Camotes
Sea,
Eastern
Visayas
6.00%
(carried+
free in 1
well)
7 May
2008
A
Philodrill Corp.,
Nido Petroleum
Ltd., Oriental
Petroleum &
Minerals Corp.,
Forum Energy
Philippines Corp.,
Alcorn Petroleum
&Minerals Corp.
Otto Energy,
Frontier Gasfields
Pty. Ltd.
A, B
Otto Energy
Investments, Cosco
Capital Inc.,
PetroEnergy
Resources Corp.
Otto Energy
Philippines, Otto
Energy Investments
Transfer of
interest to non+
withdrawing
parties;
farmout
Note: A = Contractor provides all required services and technology funding. Contractor is entitled to a service fee out of production
equivalent to 40% of net proceeds. Net proceeds would refer to the balance of gross income after deducting Filipino participation
incentive allowance and operating expenses.
Note: B = The 6.82% interest in SC 55 is owned by Palawan55, a 69.35% owned subsidiary of TA Petroleum.
68
The location of TA Petroleum’s service contract areas are shown in the map below. All of TA Petroleum’s
contract blocks that are situated in the West Philippine Sea are some 40 to 50 km off the west coast of
Palawan and are not included in the areas under dispute between the Philippines and China, such as
Recto Bank (international name: Reed Bank) and the Kalayaan Group (international name: Spratly
Islands), which are 250 to 300 km off the west coast of Palawan.
These constitute the principal properties of the Company. For a more detailed discussion, see the section
“Statement of Active Business Pursuits” in this Prospectus.
Plant and equipment consist mainly of the Company’s share in the wells, platform and facilities in various
operating SCs amounting to US$ 1.76 million as at end 2012, and nil transport and office equipment.
There are no mortgages, liens and/or encumbrances over the foregoing property, plant and equipment
which are under the full use and control of the Company.
The Company has not entered into any leases of property.
There is no intention to acquire additional property, plant and equipment other than those that may be
required for the continued activities.
69
There are no legal proceedings involving TA Petroleum.
70
As of the date of this Prospectus, the Issuer has an authorized capital stock of One Billion
(1,000,000,000) Shares, each with a par value of P1.00, and its issued share capital consists of Two
Hundred Fifty Million (250,000,000) Shares. The Shares are not traded in any market, nor are they
subject to outstanding options or warrants to purchase, or securities convertible into Shares of the Issuer.
I
Shortly after the approval of the Dividend Distribution, the Issuer will apply for Listing based on
Section 1(b) of the PSE’s Amended Rules on Listing by Way of Introduction, which provides that Listing
may be appropriate where the securities of an unlisted issuer are distributed by a way of property
dividend by a listed issuer to shareholders of that listed issuer. In such a case, a public offering does not
need to be undertaken because the securities for which listing is sought would be of such an amount and
would be so widely held that their adequate marketability when listed can be assumed.
Prior to the Dividend Distribution, the Issuer has 12 stockholders, 11 of whom are individuals with 1 Share
each. The following sets out the names of the top 20 stockholders of the Issuer before and after the
Dividend Distribution:
-$" -
$-
F "$
,#4 #5
+, -
3 4-#4
! "#
F "$
,#4 #5
+, -
"$
-
!* - "$
+, -
Trans+Asia Oil and Energy
Development Corp.
Common
249,999,989
99.99%
126,838,679
50.74%
Ramon R. Del Rosario Jr.
Common
1
<0.01%
45,468
0.02%
Oscar J. Hilado
Common
1
<0.01%
25,501
0.01%
Magdaleno B. Albarracin
Common
1
<0.01%
12,751
0.01%
,*- "$
"01+"/4-
/,
-0!
3 4-#4
! "#
!
!* - "$ +, -
!
Francisco L. Viray
Common
1
<0.01%
114,194
0.05%
Roberto M. Lavina
Common
1
<0.01%
1,582
0.00%
Raymundo A. Reyes Jr.
Raphael Perpetuo M.
Lotilla
Victor J. Del Rosario
Common
1
<0.01%
19,822
0.01%
Common
1
<0.01%
1
<0.01%
Common
1
<0.01%
41,454
0.02%
Pythagoras L. Brion, Jr.
Common
1
<0.01%
5,101
<0.01%
Romeo L. Bernardo
Common
1
<0.01%
1
<0.01%
Edward S. Go
Common
1
<0.01%
1
<0.01%
PCD Nominee Corporation
Common
+
+
101,454,266
40.58%
PHINMA Corporation
Phil. Investment Mgt.
Consultants, Inc.
Common
+
+
11,457,956
4.58%
+
+
5,147,190
2.06%
Common
71
-$" -
,*- "$
"01+"/4-
/,
-0!
"$
-
!* - "$
+, -
3 4-#4
! "#
!
$-
F "$
,#4 #5
+, -
3 4-#4
!* - "$ +, -
! "#
!
F "$
,#4 #5
+, -
Samuel Uy Chua
Common
+
+
1,020,000
0.41%
EMAR Corporation
Francisco Genaro Ozamiz
Lon
Albert Mendoza &/or
Jeannie Mendoza
Albert Awad
Common
+
+
950,740
0.38%
Common
+
+
423,300
0.17%
Common
+
+
76,193
0.03%
Common
+
+
74,260
0.03%
Phil. Remnants Co., Inc.
Peter Mar or Annabelle C.
Mar
Renato O. Labasan
Common
+
+
71,431
0.03%
Common
+
+
52,020
0.02%
Common
+
+
38,760
0.02%
Teresita A. Dela Cruz
Common
+
+
38,306
0.02%
Belek, Inc.
Common
+
+
37,842
0.02%
Rizalino G. Santos
Common
+
+
36,643
0.01%
Joseph D. Ong
William How &/or Benito
How
Others (Aggregate)
Common
+
+
35,640
0.01%
Common
+
+
34,003
0.01%
" ,/
!
,#4 #5
Common
+
+
1,946,895
0.76%
&6) ))) )))
%)) ))F
&6) ))) )))
%)) ))F
" -@ The above is a list of stockholders as of record; the beneficial ownership of the above stockholders in Shares
held by Philippine Central Depository Nominee Corporation (“PCDNC”) is described in pages 90+92 of this
Prospectus.
The Dividend Distribution will result in the following:
TA Oil’s shareholdings will decrease from approximately 99.99% to approximately 50.74%;
Aside from TA Oil, PCD Nominee Corporation, PHINMA Corporation (formerly Bacnotan
Consolidated Industries, Inc.), and Phil. Investment Mgt. Consultants, Inc. will become a
beneficial owner of more than 5% of the Shares;
Because Ramon R. Del Rosario Jr., Oscar J. Hilado, Magdaleno B. Albarracin,
Francisco L. Viray, Roberto M. Lavina, Victor J. del Rosario, Pythagoras L. Brion, Jr., and
Raymundo A. Reyes Jr., are directors of TA Petroleum and stockholders of TA Oil, they will
receive Shares as property dividends in the amounts set out above; and
TA Petroleum, which used to be 100% Filipino owned will have foreign stockholders, which will
beneficially own approximately 3,315,692 shares equivalent to 1.33% of the Shares.
72
The Company has not declared any cash or other dividends from the time of its incorporation.
Apart from legal restrictions governing the declaration of dividends, which are discussed in page 74 of this
Prospectus, there are no restrictions that limit the Company’s ability to pay dividends whether currently or
in the future.
B
C
On 28 August 2012, the Board and stockholders representing at least two+thirds of the Company’s
outstanding capital stock approved the increase of the Corporation’s authorized capital stock from Forty
Million Pesos (P40,000,000.00), divided into Four Billion (4,000,000,000) shares at P0.01 per share, to
One Billion Pesos (P1,000,000,000.00) divided into One Hundred Billion (100,000,000,000) shares at the
same par value. Out of the increase, TA Oil subscribed to an additional P240,000,000.00 divided into
24,000,000,000 Shares at P0.01 per share, which subscription was fully paid for in cash on
21 December 2012. The increase in capital stock was approved by the SEC on 28 November 2012.
Subscription for shares of the capital stock of a corporation in pursuance of an increase in its authorized
capital stock, when no expense is incurred, no commission, compensation or remuneration is paid or
given in connection with the sale or disposition of such securities, and only when the purpose for
soliciting, giving or taking of such subscriptions is to comply with the required minimum 25% subscribed
capital stock, is exempt from registration under the SRC. No notice or confirmation of exemption is
required to be filed for the issuance of shares pursuant to an increase in authorized capital stock.
On 22 April 2013, the Board and stockholders representing at least two+thirds of the Company’s
outstanding capital stock approved the increase the par value of the shares of the Corporation from
P0.01 per share to P1.00 per share, resulting to an authorized capital stock of P1,000,000,000.00, divided
into 1,000,000,000 shares at the par value of P1.00 per share. The change in par value was approved by
the SEC on 31 May 2013.
The Company’s authorized capital consists of 1,000,000,000 Shares, which are common shares.
123,161,310 will be covered by the Dividend Distribution, and 250,000,000 Shares will be covered by the
Listing. The Shares will not be offered to the public, although they are expected to be traded after the
Listing. The Shares have the following features:
3 4-#4
5+
The Company’s By+laws provide that dividends shall be declared and paid out of the unrestricted retained
earnings which shall be payable in cash, property or stock to all shareholders on the basis of outstanding
stock held by them, as often and at such times as the Board may determine and in accordance with law
and applicable rules and regulations. No fractional shares shall be issued from any declaration of stock
dividends.
73
" #5
5+
At every meeting of the stockholders, each stockholder shall be entitled to vote in person or by proxy and,
unless otherwise provided by law, he shall have one vote for each share of stock entitled to vote and
recorded in his name in the books of the Corporation.
-
*. 3-
5+
The Company’s Articles of Incorporation provide that there shall be no pre+emptive rights with respect to
shares of stock to be issued, sold or otherwise disposed of by the Company for any corporate purpose,
including shares of stock to be issued pursuant to a duly approved stock option, stock purchase, stock
subscription or similar plans.
+,#5- #
"# "/
There is no provision in the Company’s Articles of Incorporation and By+laws which may delay, deter, or
prevent a change in control in the Company except the provision on Lock Up Requirements under Article
Seventh, as amended on 8 August 2013, in accordance with the PSE’s Revised Listing Rules for the
Main and SME Boards. The Lock Up Requirements provide:
“In the event of listing of the Corporation’s shares in the Main Board of the PSE:
1) Existing stockholders of the Corporation who own an equivalent of at least 10% of the issued and
outstanding shares of stock of the Corporation shall not or are prohibited from selling, assigning or in
any manner disposing of their shares for a period of:
a) One hundred eighty (180) days after the listing of said shares if the Corporation meets the track
record requirements of the PSE; or
b) Three hundred sixty+five (365) days after listing of said shares if the Corporation is exempt from
the track record and operating history requirements of the PSE.
2) In the event of an issuance or transfer of shares (i.e. private placements, asset for shares swap or a
similar transaction) or instruments which lead to issuance of shares (i.e., convertible bonds, warrants
or a similar instrument) done and fully paid for within One hundred eighty (180) days prior to the start
of the offering period, or, prior to listing date in case of companies listing by way of introduction, and
the transaction price is lower than that of the offer price in the Initial Public Offering, or listing price for
a listing by way of introduction, all shares availed of shall be subject to a lock+up period of at least
Three hundred sixty+five (365) days from full payment of the aforesaid shares.
In the event of listing of the Corporation’s shares in the Small, Medium and Emerging (SME) Board of the
PSE:
1) All existing stockholders of the Corporation shall not or are prohibited from selling, assigning,
encumbering or in any manner disposing of their shares for a period of one (1) year after the listing of
such shares.
2)
In the event of an issuance or transfer of shares (i.e., private placement, asset for shares swap or a
similar transaction) or instruments which lead to issuance of shares (i.e., convertible bonds, warrants
or a similar instrument) done and fully paid for within six (6) months prior to the start of the offering
period, or, prior to listing date in case of companies listing by way of introduction, and the transaction
price is lower than that of the offer price in the Initial Public Offering, or listing price for listing by way
74
of introduction, all shares subscribed or acquired shall be subject to a lock+up period of at least one
(1) year from listing of the aforesaid shares.
3) The Corporation shall not and is prohibited from changing its primary purpose and/or secondary
purposes stated in this Articles of Incorporation for a period of seven (7) years following its listing.
In the event of amendment or repeal of any Rule of the PSE that affects the foregoing Lock+up
Requirements, the said amendment or repeal shall be considered part of the said Lock+up Requirements
which shall
be accordingly amended or repealed, as the case may be.”
"01 !.
-
0 "# !#4-
+-
#5
!/-
Under Article III, Part D, Section 2 of the Listing Rules for the Main and SME Boards of the PSE (Listing
Rules), existing stockholders of a Company applying for listing with the PSE shall cause its existing
stockholders who own an equivalent of at least ten percent (10%) of the issued and outstanding shares of
stock of the company to refrain from selling, assigning or in any manner disposing of their shares for a
period of (i) One hundred eighty days (180) days after the listing of the said shares if the applicant
company meets the track record requirement under Article III, Part D, Section 1 of the Listing Rules; or (ii)
Three hundred sixty five (365) days after listing of said shares if the applicant company is exempt from
the track record and operating history requirements of the Listing Rules.
If there is any issuance or transfer of shares (i.e., private placements, assets for shares swap or a similar
transaction) or instruments which lead to issuance of shares (i.e., convertible bonds, warrants or a similar
instrument) done and fully paid for within One hundred eighty (180) days prior to the start of the offering
period, or, prior to listing date in case of companies listing by way of introduction, and the transaction
price is lower than that of the offer price in the Initial Public Offering, or listing price for a listing by way of
introduction, all shares availed of shall be subject to a lock+up period of at least Three hundred sixty+five
(365) days from full payment of the aforesaid shares.
Upon distribution of the Company’s shares by property dividend declared byTA Oil, the following
stockholders, being holders of at least ten percent (10%) of the issued and outstanding shares of stock of
the Corporation, will be subject to the 365+day lock+up period:
+, -+"/4-
TA Oil
Philippine Investment Management (PHINMA), Inc.
Phinma Corporation
TOTAL
" "$ +, ! J-0
" +- '(6 4,2 "01
. "3 "#
126,838,679
30,985,111
32,481,317
190,305,107
- 0-# ,5- "$
! ,#4 #5
+, 50.74%
12.39%
12.99%
76.12%
With respect to shares subject to the lock+up requirement due to issuance or transfer of shares 180 days
prior to the listing date with a transaction price lower than that of the listing price for a listing by way of
introduction, the following stockholder whose share was issued within 180 days prior to the established
listing date will also be subject to the 365+day lock+up period:
+, -+"/4-
Romeo L. Bernardo
" "$ +, ! J-0
" +- '(6 4,2 "01
. "3 "#
1
- 0-# ,5- "$
! ,#4 #5
+, <0.01%
To implement the lock+up restrictions of the PSE, the foregoing parties will enter into an escrow
agreement with the Philippine Depository and Trust Corporation (PDTC). A copy of the escrow agreement
75
has been submitted to the PSE as part of the Company’s application for Listing and will be updated when
the actual escrow agreement is executed.
!!-
"01 5 ,#
"
"01 ". "#
On 8 August 2013, the Board of Directors of the Company resolved to set aside a total of 50 million
shares from the unsubscribed portion of the Company’s shares for (a) stock grants in favor of
TA Petroleum’s officers and managers; and (b) stock options for the Company’s directors, officers and
employees, under such terms and conditions determined by the Company’s Executive Committee. The
said resolution was approved by the Company’s stockholders as of the said date. As of the date of this
Prospectus, the Company has not implemented or taken action on the said resolution of the Board and no
stock option plan has been prepared or approved by the Company’s stockholders.
76
Under Philippine law, dividends may be declared out of a corporation’s unrestricted retained earnings
which shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding
stock held by them. The amount of retained earnings available for declaration as dividends may be
determined pursuant to regulations issued by the SEC. The approval of the Board is generally sufficient to
approve the distribution of dividends, except in the case of stock dividends which requires the approval of
stockholders representing not less than two+thirds (2/3) of the outstanding capital stock at a regular or
special meeting duly called for the purpose.
The Company will follow the rules of the Securities and Exchange Commission and the Philippine Stock
Exchange regarding the setting of the Record Date by companies whose shares are registered and listed.
In declaring dividends, the set Record Date shall not be less than ten (10) trading days from disclosure to
the Philippine Stock Exchange of the declaration of the dividends
The Company’s By+laws provide that Cash and Stock dividends shall be declared only from the
unrestricted surplus profit and shall be payable at such time and in such manner and in such amounts as
the Board and stockholders respectively shall determine. No dividends shall be declared which would
impair the capital of the Corporation. Apart from the said restrictions provided by law and the SEC, there
is no restriction on payment of dividends.
The Service Contracts of the Company are on their exploration stage. As such, significant expenses on
the part of the Company to finance its share in the expenses of exploration, in accordance with its
participation interests in the said Service Contracts, are expected. In the event of favorable results of
exploration and extraction of oil/gas from the areas of said Service Contracts, and favorable operational
and market conditions, the company plans to declare cash or stock dividends to its shareholders on a
regular basis, in amounts determined by the Board, taking into account various factors, including:
the level of the Company’s cash, gearing, return on equity and retained earnings;
the Company’s results for, and the Company’s financial condition at the end of the year, the year
in respect of which the dividend is to be paid and the Company’s expected financial performance;
the Company’s projected levels of capital expenditure and other investment plans;
restrictions of payment of dividends that may be imposed on the Company by any of its financing
arrangements and current and prospective debt service requirements; and
such other factors as the Board deems appropriate.
The Company has not declared any dividends as of the date of this Prospectus.
77
Investors should read the selected financial data with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and the Company’s consolidated financial statements and
related notes included elsewhere in this Prospectus.
The information below is not necessarily indicative of the results of future operations and does not purport
to project the results of the Company’s operations or financial condition for any future period or date.
The selected financial information set forth in the following tables has been derived from the Company’s
audited interim consolidated financial statements as at 31 March 2014 and for the three months ended
31 March 2014 and 2013 comprising the interim consolidated balance sheet as at 31 March 2014 and
interim consolidated statements of income, statements of comprehensive income, statements of changes
in equity and statements of cash flows for the three months ended 31 March 2014 and 2013 and its
consolidated financial statements as at and for the years ended 31 December 2013, 2012 and 2011
comprising consolidated balance sheets as at 31 December 2013, 2012 and 2011 and consolidated
statements of income, statements of comprehensive income, statements of changes in equity and
statements of cash flows for the years then ended, included elsewhere in this Prospectus.
The Company’s audited interim consolidated financial statements and audited consolidated financial
statements were prepared in accordance with the Philippine Financial Reporting Standards (“PFRS”) and
were audited by SGV, in accordance with PSA.
"# "/ 4, -4
#,#0 ,/
, -*-#
" +- + -*"# + -#4-4
, 0+ '%
&)%9
Interest income
Costs and expenses
Other charges
Loss before income tax
Income tax
Net Loss
! , /- "@
Equity holders of the Parent Company
Basic/Diluted loss per share*
"
&)%'
+- 2-, -#4-4
-0-* - '%
&)%&
&)%%
23,251
3,375,054
(207,194)
3,558,997
(320)
798,288
9,380,729
(4,739,255)
13,321,696
320
263,418
3,294,285
+
3,030,867
+
32
36,750
+
36,718
+
' 66> (??
%' '&& )%(
' )') >(?
'( ?%>
3,541,851
16,826
' 66> (??
12,877,179
444,837
%' '&& )%(
3,005,090
25,777
' )') >(?
36,718
+
'( ?%>
0.0142
0.052
0.100
0.004
* Restated to show effects of the reverse stock split in 2013.
78
"# "/ 4, -4
#,#0 ,/
, -*-#
,
, 0+
'%
&)%9
! -#
Cash and cash equivalents
Investments held for trading
Advances to related party
Other receivables
" ,/ ! -#
"#0! -#
Deferred exploration costs
" ,/ "#0! -#
-
,
&)%'
-0-* - '%
&)%&
&)%%
18,397,629
138,203,543
+
20,259
%6( (&% 9'%
21,029,901
138,411,121
+
3,033
%6A 999 )66
165,897,557
+
8,666,268
8,778
%?9 6?& ()'
7,993
+
+
+
? AA'
74,736,195
?9 ?'( %A6
74,736,195
?9 ?'( %A6
72,218,898
?& &%> >A>
+
&'% '6? (&(
&'9 %>) &6)
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? AA'
1,493,753
% 9A' ?6'
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46,935
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+
250,000,000
+
(22,713,584)
&&? &>( 9%(
2,577,457
229,863,873
250,000,000
+
(19,171,733)
&') >&> &(?
2,594,283
233,422,550
250,000,000
+
(6,294,554)
&9' ?)6 99(
3,039,120
246,744,566
10,000,000
(6,702,543)
(3,289,464)
? AA'
+
7,993
&'% '6? (&(
&'9 %>) &6)
&9( ?A% 6)%
? AA'
=
! -#
, / Accounts payable and
other current liabilities
" ,/
, / -
Capital stock
Subscription receivables
Deficit
=
=
79
"# "/ 4, -4
#,#0 ,/
, -*-#
" +- + -*"# + -#4-4
, 0+ '%
&)%9
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Effect of exchange rate changes on cash
and cash equivalents
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents, beginning of
period
Cash and cash equivalents, end of period
"
+- 2-,
-#4-4
-0-* - '%
&)%'
&)%&
&)%%
(2,632,656)
+
+
(2,445,875)
(142,422,849)
+
(11,658,978)
(72,218,898)
249,767,440
(36,718)
+
36,251
384
1,068
+
+
(2,632,272)
(144,867,656)
165,889,564
(467)
21,029,901
%> 'A? (&A
165,897,557
&% )&A A)%
7,993
%(6 >A? 66?
8,460
? AA'
80
:
!
(#
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*
+
!
"
'
$
!
"
$
(,
)
+
TA Petroleum is currently a participant in four (4) petroleum Service Contracts with the Government of the
Republic of the Philippines, namely: SC 6, SC 51, SC 69 and SC 55 (through its subsidiary,
Palawan55 Exploration & Production Corporation).
TA Petroleum intends to maintain its participation in the aforementioned service contracts over the next
twelve (12) months. All these contracts are in the exploration stage, i.e. without any commercial
production. The Company is carried in the expenditures related to the 2014 work programs under
SC 6 Block A, SC 51, SC 69 and SC 55, and has a minimal share in the cost of the work program under
SC 6 Block B.
The Company also plans to acquire participating interests in at least two (2) additional local service
contracts in the following year. The Company and its parent and sole shareholder, TA Oil, have sufficient
funds to pursue these new ventures at the initial exploration stage. The Company will raise money at a
later stage if the results of initial studies justify further exploration through drilling, or field development, as
the case may be. The Company does not expect to perform any product research and development, nor
purchase or sell significant plant or equipment in conjunction with its Plan of Operation for the next twelve
(12) months. Further, no significant change in the number of its employees is anticipated over the same
period.
'%
&)%' &)%&
&)%%
For the year 2013, the Company earned interest income of P798,288 up from P263,418 reported in the
same period in 2012. The increase is driven by additions in investments in Unit Investment Trust Fund
(“UITFs”) during the year. Cost and Expenses increased to P9.4 million in 2013 from P3.3 million in 2012
due to addition of manpower and engagement of professional services. Other charges of P4.7 million in
2013 represent unrealized loss from changes in fair value of investments held for trading.
Consolidated Net Loss amounted to P13.3 million for the year 2013, primarily from the increase in
expenses and other charges, compared to P3.0 million and P36,718 for the same period in 2012 and
2011, respectively.
As at 31 December 2013, the Company’s Total Assets amounted to P234.2 million as against P246.8
million as at end of 2012. The 5% decrease was primarily due to expenditures for business activities.
P159.4 million are Current Assets with P21.0 million in Cash and cash equivalents, P138.4 million in
Investments held for trading and Other receivables. Noncurrent Assets increased to P74.7 million as of
December 31, 2013 from P72.2 million in 2012.
Noncurrent Assets is mainly composed of Deferred exploration costs representing the Company’s share
in the expenditures incurred under petroleum SCs with DOE. Details of deferred exploration costs are as
follows:
81
SC 51 – P32.6 million (2013);P32.6 million (2012); NIL (2011)
SC 69 – P16.0 million (2013); P14.7 million (2012); NIL (2011)
‘Deferred exploration costs’ include mainly expenditures for geological and geophysical studies and, in
some instances, exploratory drilling costs. The service contracts provide for certain minimum work and
expenditure obligations and the rights and benefits of the contractor. Cash calls are made by the service
contract operator in accordance with the work program and budget for the particular phase of the service
contract as approved by the DOE. Exploration budgets for each service contract are as follows:
Contract
Period Covered
Budget (100%)
In US$ Million
SC 6 Block A
2014
3.00
SC 6 Block B
2014 + 16
0.72
SC 51
2013 + 14
8.36
SC 55
2013 + 14
51.00
SC 69
2013
0.17*
*No budget for 2014 pending transfer of interest of withdrawing party
The Company’s committed amounts as of this date as minimal. The Company has commitments for DOE
training under SC 6 Block A and SC 69, a commitment for geological and geophysical work under SC 6
Block B once the work program for the next 2 years is approved by the DOE, but these will also be a
small amount. The Company is carried+free in current programs for SC 51, SC 55 and SC 69. There are
no additional expected contributions required from the Company in these Service Contracts.
Disclosure of the estimated total cost of exploration to complete is not feasible in this industry unlike for
construction related contracts.
Current liabilities as at 31 December 2013 amounted to P757,700 from P46,935 in 2012, mainly due to
accrual of expenses for the year.
Total Equity decreased by 5% to P233.4 million as at 31 December 2013 from P246.7 million in 2012.
Deficit tripled to P19.2 million from P6.3 million in 2012 due to the 2013 Net Loss attributable to the
Parent Company of P12.9 million. Non+controlling Interests decreased to P2.6 million as at
31 December 2013, reduced by its proportionate share in the Consolidated Net Loss of the Company.
Net Cash Used in Operating Activities amounted to P2.4 million for the year 2013 and P11.7 million for
the same period in 2012. Cash Used in Investing Activities, mainly additions to Investments Held for
Trading and Deferred Exploration Costs, amounted to P142.4 million in 2013 compared to P72.2 million in
2012. No Financing Activities occurred during the year 2013.
'%
&)%9
&)%'
The Company earned interest income on its bank deposits and short+term placements amounting to
P23,251 and P531,552 on the first quarter of 2014 and 2013, respectively. The decline is largely due to
the decrease in level of cash and cash equivalents for the comparative period.
Consolidated costs and expenses amounted to P3.4 million for the three+month period of 2014, up from
P2.0 million of the same period in 2013. Increase is attributed to increase in management and
professional services rendered in 2014.
82
The Company posted a Consolidated Net Loss of P3.6 million and P1.5 million for the first quarter of 2014
and 2013, respectively.
Total Assets decreased to P231.4 million as at March 31, 2014 from P234.2 million as at 31 December
2013. Decrease of P2.8 million is due to the operational requirements expended by the Company in the
first quarter of 2014.
Of the P231.4 million Total Assets as at 31 March 2014, P156.6 million are Current Assets with P18.4
million in Cash and cash equivalents and P138.2 million in Investments held for trading and Other
receivables. The remaining P74.7 million is the Company’s Deferred exploration costs, which has no
movement from 31 December 2013. Deferred exploration costs as at end of first quarter 2014 is as
follows:
SC 51 – P32.7 million
Current Liabilities are taxes withheld and accrual of expenses, which amounted to P1.5 million as at
March 31, 2014 and P757,380 as at 31 December 2013, respectively.
As at 31 March 2014, Total Equity amounted to P229.9 million from P234.2 million in 31 December 2013.
The Company’s Capital Stock remain unchanged at P250 million. Deficit increased to P22.7 million in 31
March 2014 from P19.2 million in 31 December 2013 due to the first quarter’s Net Loss attributable to the
Parent Company of P3.5 million. Non+controlling Interests slightly decreased by P16,826 representing its
share in the Company’s Net Loss for the period.
Net Cash Used in Operating Activities amounted to P2.6 million for the first quarter of 2014 while Net
Cash Provided by Operating Activities amounted to P8.4 million for the same period in 2013. No
Financing and Investing Activities occurred in the first quarters of 2014 and 2013.
-2 - $" *,#0#4 0, "
, 0+
" *!/,
<! 4 2
, "
! -#
, "
Current assets
-0-* -
-0-* -
-0-* -
&)%9
&)%'
&)%&
&)%%
104.85
210.52
3,719.45
N/A
104.85
210.52
3,719.45
N/A
Current liabilities
04 -
, "
Cash + Short+term
investments +
Accounts
Receivables
+ Other liquid assets
Current liabilities
83
-2 - $" *,#0#4 0, "
"/3-#02
, 0+
" *!/,
-0-* -
-0-* -
-0-* -
&)%9
&)%'
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+
+
+
1.01
1.00
1.00
1.00
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
-0-* -
-0-* -
-0-* -
&)%9
&)%'
&)%&
&)%%
+1.54%
+5.71%
+2.46%
+446.34%
+1.54%
+5.69%
+1.23%
+459.38%
, "
- E <! 2
, "
Total Liabilities
Total Equity
- " -<! 2
, "
Total Assets
Total Equity
Earnings before
interest
#-0"3- ,5- , "
& tax (EBIT)
Interest expense
- "
<! 2 , "
Debt + Cash & cash
equivalents
Total equity
, 0+
-2 - $" *,#0#4 0, "
"$ , / 2
- ! # "#
-<! 2
" *!/,
, "
Net income after tax
Average
stockholders' equity
,
- ! # "#
-
Net income before
taxes
Total assets
84
-2 - $" *,#0-
, 0+
#4 0, "
" *!/,
- ! #"3-
Revenues
-0-* -
-0-* -
-0-* -
&)%9
&)%'
&)%&
&)%%
N/A
N/A
N/A
N/A
Total assets
! -#
, " ,#4
04 -
, "
Current ratio and acid test ratio significantly decreased from 3,719.45 in 31 December 2012 to
104.85 in 31 March 2014, due to increase in current liabilities.
-
" -<! 2 , "
The Company has minimal liabilities and funded majority through equity.
-
" -<! 2 , "
Asset+to+equity ratio remained at 1.00 from 31 December 2013, 2012 and 2011 because of
minimal liabilities of the Company. As at 31 March 2014, Asset to equity ratio slightly increased to
1.01 due to additional liabilities incurred for the first quarter of 2014.
#--
0"3- ,5- , " ,#4
- 4-
" -<! 2 , "
These ratios are not applicable since the Company has no borrowings.
- ! # "# -<! 2 ,#4
- ! # "# ,
-
The Company showed negative returns because it has not started commercial operations and
posted net losses on the periods covered. Capital infusion in 2012 significantly increased return
on equity and return on assets.
- ! #"3This ratio is not applicable since the Company has not started commercial operations yet as at 16
May 2014.
There was no change in the Company’s independent accountants since the Company’s incorporation in
1994, except for the changes in audit engagement partner.
There were no disagreements with any accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, nor was there any resignation or dismissal
of any accountant who was previously engaged as the principal accountant to audit the Company’s
financial statements, or an independent accountant who was previously engaged to audit a significant
subsidiary and on whom the principal accountant expressed reliance in its report.
The Company has no known trends or any known demands, commitments, events or uncertainties that
will result in or that are reasonably likely to result in the Company’s liquidity increasing or decreasing in
any material way.
85
Events that may trigger direct or contingent financial obligation that is material to the Company, including
any default or acceleration of an obligation, are as follows:
a) The Company’s subscription to Frontier Oil Corporation (FOC) shares, in the event of a
successful Initial Public Offering of FOC.
b) The Company’s payment for the participating interest in SC 52, in the event the Option is
exercised (TA Oil intends to assign its interest in SC 52 to the Company).
There are no material off+balance sheet transactions, arrangements, obligations (including contingent
obligations), and other relationships of the company with unconsolidated entities or other persons created
during the reporting period.
The Company’s material commitment for capital expenditure is its subscription in FOC shares, in the
event of a successful Initial Public Offering of FOC.
The uncertainty on the price of FOC shares, if listed, and any termination of the Company’s Service
Contract(s), are reasonably expected to have a material favorable or unfavorable impact on net sales or
revenues or income from continuing operations, or can cause a material change in the relationship
between costs and revenues.
There are no significant elements of income or loss that did not arise from the Company’s operations.
There are no seasonal aspects that had a material effect on the financial condition or results of
operations.
86
The overall management and supervision of the Company is undertaken by the Board. The regular
directors were elected during the annual meeting of the stockholders held on 28 August 2012, to serve
until their successors are elected and qualified. The last meeting of the Board and stockholders was held
on 8 August 2013. There are eleven members in the Board.
As of the date of this Prospectus, the composition of the Company’s Board is as follows:
,*Ramon R. Del Rosario Jr.
Oscar J. Hilado
Magdaleno B. Albarracin, Jr.
Francisco L. Viray
Roberto M. Laviña
Raphael Perpetuo M. Lotilla (Independent)
Romeo L. Bernardo (Independent)
Edward S. Go (Independent)
568
75
77
64
62
60
55
65
60
59
75
;-# + .
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
" "#
Chairman
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Mr. Raphael Perpetuo M. Lotilla, Mr. Romeo L. Bernardo and Mr. Edward S. Go are the Company’s
Independent Directors and were nominated and elected in accordance with Rule 38 and Article IV+A of
the Company’s By+Laws. The Nomination Committee pre+screens and short+lists all candidates for
independent directors in accordance with the list of qualifications and disqualifications in Rule 38 and the
By+Laws, including, but not limited to: educational background or extensive business experience, integrity
and probity, diligence, ownership of at least one share, nature of Corporations of which he is a director,
age, number of directorships, absence of conflict of interest, experience as director, CEO or COO in other
companies, knowledge of finance and accounting, knowledge of industry, knowledge of local and
international market and strategic vision. An independent director shall hold no interests or relationships
with the Company that may hinder his independence from the Company or management which would
interfere with the exercise of independent judgment in carrying out the responsibilities of a director and
which he shall certify in a letter of confirmation to the Corporate Secretary. Mr. Lotilla and Mr. Go were
elected as independent directors on 8 August 2013. Mr. Bernardo was elected as independent director on
23 April 2014.
Mr. Lotilla, Mr. Bernardo, and Mr. Go are neither officers nor substantial shareholders of the Company nor
are they regular directors, substantial shareholders or officers of its related companies. Under Article IV+
A of the Company’s By+Laws, a related company means another company which is (a) its holding
company; (b) its subsidiary; or (c) a subsidiary of its holding company.
As of the date of this Prospectus, the following are the Company’s executive officers:
,*Ramon R. Del Rosario Jr.
Francisco L. Viray
Mariejo P. Bautista
568
64
60
60
48
;-# + .
Filipino
Filipino
Filipino
Filipino
Filipino
" "#
Chairman
President & CEO
EVP
EVP+Treasurer
VP+Controller
87
Juan J. Diaz
Alan T. Ascalon
Benjamin S. Austria
82
38
67
Filipino
Filipino
Filipino
Corporate Secretary
Asst. Corporate Secretary
Senior Adviser
The following discussion presents a brief description of the business experience of each of the
Company’s directors and executive officers over the past five years.
,*"#
4-/ " , " K was elected Chairman of the Board of the Company and is currently Vice
Chairman of Trans+Asia Oil and Energy Development Corporation since 16 April 2008. He obtained his
BSC+Accounting and AB+Social Sciences degrees (Magna cum Laude) from De La Salle University and
Masters in Business Administration degree from Harvard Business School. He is the President and CEO
of PHINMA Inc., President and Vice Chairman of PHINMA Corp., Chairman of AB Capital and Investment
Corporation, Chairman of Microtel Inns and Suites (Pilipinas), Inc. and Chairman of the Boards of
Trustees of Araullo University, Cagayan de Oro College, University of Iloilo and University of Pangasinan.
He is a director of several PHINMA+managed companies and currently serves as a member of the Boards
of Directors of Ayala Corp., Roxas Holdings, Inc. and Holcim (Phils.), Inc. Mr. del Rosario served as
Secretary of Finance of the Philippines in 1992+1993. He is the Chairman of the Makati Business Club,
Philippine Business for Education (PBED) and De La Salle Philippines, Inc. He is the brother of Mr. Victor
J. del Rosario. He has been a Director of the Company since 2002.
0, K
/,4" is currently Chairman of the Board of Trans+Asia Oil and Energy Development
Corporation since 16 April 2008. He was the Chairman & CEO of PHINMA Inc. (January 1994 to August
2005); and as Chairman (August 2005 to present). Chairman of Holcim Phils., Inc. Chairman of the Board
& Chairman of the Executive Committee of PHINMA Corp; Chairman of the Board of PHINMA Property
Holdings Corp., Vice Chairman of Trans Asia Power Generation Corporation (TA Power) (1996 to
present); Director of Manila Cordage Corp. (1986 to present); Director of Seven Seas Resorts & Leisure,
Inc., and First Philippine Holdings Corporation (Nov. 1996 to present); Philex Mining Corporation
(December 2009 to present); Graduate of De La Salle College (Bacolod), Bachelor of Science in
Commerce, (1958) Masters Degree in Business Administration, Harvard Graduate School of Business,
(1962). For 13 years, he was the Vice+Chairman of the Board of Directors and for 17 years, he was the
Chairman of the Executive Committee of Trans+Asia Oil.
,54,/-#"
/ , ,0 # K obtained his Bachelor of Science in Electrical Engineering degree from the
University of the Philippines and Master of Science in Electrical Engineering degree from the University of
Michigan. He finished his Masters in Business Administration from the University of the Philippines and
Doctorate in Business Administration from Harvard University. Dr. Albarracin joined the PHINMA Group
in 1971 as a consultant. He is currently the Vice+Chairman of PHINMA and Chairman of its Executive
Committee. He is also Vice Chairman of Araullo University, Cagayan De Oro College, University of Iloilo
and University of Pangasinan. He is the President of Holcim Philippines, Senior Executive Vice President
of PHINMA Corp. and Chairman of UP Engineering Research and Development Foundation. He is also a
member of the Board of Directors of AB Capital and Investment Corporation, PHINMA Foundation, Union
Galvasteel Corporation, Trans+Asia Power Generation Corporation, PHINMA Property Holdings Corp.,
Pangasinan Medical Center, Inc. and UP Board of Regents. He has been a Director of Trans+Asia Oil
since 1986.
" - "
,3 L, has a Bachelor of Arts in Economics degree from Ateneo de Manila University and a
Masters in Business Management degree from Asian Institute of Management. He finished his Program
for Management Development at Harvard School of Business in 1988. He is the President and a Member
of the Board of T+O Insurance Brokers, Inc. In 2005, he became PHINMA Inc.’s Senior Executive Vice
President/Chief Operating Officer (COO) and is concurrently the Chief Financial Officer of the PHINMA
Group and a Member of the Board. He is also a Member of the Board and Executive Vice President/Chief
Financial Officer/Treasurer of Trans+Asia Renewable Energy Corporation (TAREC). He is the Senior Vice
President/Chief Financial Officer/Treasurer of Trans+Asia Power Generation Corporation (TA Power) and
a member of the Board and Senior Vice President and Treasurer of PHINMA Corporation. He is also
88
Treasurer and Board Member of PHINMA Property Holdings Corporation, CIP II Power Corporation
(CIPP), Araullo University, Cagayan de Oro College, University of Iloilo and University of Pangasinan.
He has been the Chief Financial Officer and Treasurer of the Company for 18 years. He became the
Executive Vice President on 2 April 2004 and was elected as a Director of the Trans+Asia Oil on 12 April
2005.
,#0 0"
,2 is the President and Chief Executive Officer of the Company. He is concurrently the
President and Chief Executive Officer of Trans+Asia Oil and Energy Development Corporation, Trans+Asia
Power Generation Corporation, Trans+Asia Renewable Energy Corporation and CIP II Power
Corporation. He is also at present a member of the Board of Directors of Araullo University, Cagayan de
Oro College and University of Pangasinan of the PHINMA Education Network (PEN), and Chairman,
Pangasinan Medical Center, Inc. He obtained his Bachelor of Science and Masters in Electrical
Engineering degrees from the University of the Philippines and his Doctorate in Engineering degree from
West Virginia University. He joined the PHINMA Group in 1999, a year after he served as Secretary of
the Department of Energy from 1994 to 1998. Earlier, he was President of the National Power
Corporation beginning May 1993. Dr. Viray served on the Board of Directors of Meralco, Petron, Union
Cement Corporation (now Holcim Philippines, Inc.) and United Pulp and Paper Company, Inc.
0 " K 4-/ " , " is an Economics and Accounting graduate of De La Salle University and holds a
Master of Business Administration degree from Columbia University. He was elected as Director of Trans+
Asia Petroleum Corporation on 8 August 2013. He was also elected as Director of Trans+Asia Oil and
Energy Development Corporation on 15 September 2008 to serve the unexpired term of Ambassador
Ramon del Rosario, Sr. He is the Vice+Chairman /CEO of Union Galvasteel Corporation and is also the
Executive Vice President and Chief Strategic Officer of PHINMA Inc. He is also a member of the Board of
Directors of PHINMA Inc. and various PHINMA+managed companies. Mr. Del Rosario is the brother of
Mr. Ramon R. del Rosario, Jr.
2 +,5" ,
"# was elected Executive Vice President and Treasurer of the Company in 2012. He
received his Bachelor of Science in Management Engineering degree from Ateneo de Manila University
and holds a Master in Business Administration degree from University of the Philippines. He is currently
the Senior Vice President and Chief Finance Officer of Trans+ Asia Oil He is also currently the EVP/CFO
of PHINMA Property Holdings Corporation and SVP/Treasurer of PHINMA Inc. and served various
executive posts in the PHINMA+managed companies since joining the PHINMA group in 1992.
,2*!#4"
-2- K has a Bachelor of Science in Chemistry and Master of Science in Geology
degrees from the University of the Philippines. From 1976+1987, he was a Senior Geologist of PNOC.
He started with the Company as Exploration Manager and was Assistant Vice President for Exploration
from 1987 to 1994. He was elected Executive Vice President of the Company in 2012. He is also
currently the Senior Vice President for Energy Resources Development of Trans+ Asia Oil and Energy
Development Corporation, President of Palawan55 Exploration & Production Corporation and Senior Vice
President of Trans+Asia Renewable Energy Corporation. He is also the Vice President of Trans+Asia
Gold and Minerals Development Corporation since its incorporation in July 2007 and the Vice President
of Maibarara Geothermal, Inc., a 25%+owned subsidiary of the Company, since September 2010.
, -J"
,!
, obtained her Bachelor of Science in Business Administration and Accountancy
degree from the University of the Philippines. She is a Certified Public Accountant with a Master’s degree
in Business Management from the Asian Institute of Management. She worked with SyCip Gorres Velayo
& Co. in 1987 and with various multinational manufacturing and service companies up to August 2011.
She joined the Energy Group of PHINMA in September 2011 and was appointed as Vice President –
Controller of the Company, Trans+ Asia Oil, Trans Asia Power Generation Corporation and CIP II Power
Corporation.
K!,# K
,; is a member of the Philippine Bar and has a Master of Laws degree from Harvard Law
School. He is the Corporate Secretary of the Company and PHINMA Group.
89
/,#
0,/"# graduated from the University of the Philippines with a Bachelor of Arts degree in
Journalism in 1996 and a Bachelor of Laws degree in 2000. He was elected Assistant Corporate
Secretary of the Company in 2012. He was also the Assistant Legal Counsel of PHINMA, Inc. from 2005
to 2008, and is currently the Assistant Vice President and Assistant Corporate Secretary of TA Oil. He is
also the Corporate Secretary of Trans+Asia Renewable Energy Corp., and director and Corporate
Secretary of Palawan55 Exploration & Production Corporation and Assistant Corporate Secretary of
Trans+Asia Gold & Minerals Development Corp., Trans+Asia Power Generation Corporation and CIP II
Power Corporation.
"*-"
- #, 4" has a Bachelor of Science degree in Business Economics from the University of the
Philippines and a Masters Degree in Development Economics from Williams College, Mass. USA. He co+
founded LBT in 1997. His public sector work spans teaching finance at the state university, a career in
the Department of Finance rising to the Undersecretary post and working in multilateral institutions such
as the IMF and the World Bank, based in Washington DC, as well as the ADB in Manila. Presently, he is
a board director in leading listed Philippine companies such as ALFM family of funds (Chairman), Bank of
the Philippine Islands, Globe Telecom, Aboitiz Power, RFM Corporation, National Reinsurance
Corporation of the Philippines, Institute of Development and Econometric Analysis, Inc. and an
independent director of Philippine Investment Management (PHINMA) Inc. His past positions include
Alternate Director in Asian Development Bank, Finance Attache for the Philippine Mission to the United
Nations in Geneva, Switzerland, as well as an Assistant Chief for the technical staff. He has also written
and co+written economics+related articles that were prepared for The World Bank and ADB. He also
does/has done policy advisory for multilateral and bilateral institutions and the Philippine government in
public finance, capital markets, public+private partnership, pension reform, economic governance. He is
the lead Philippine partner/advisor to GlobalSource Partners, a global network of independent analysts.
,.+,-/ - .- !"
" //, has a strong background in law, legislation, ocean law and marine affairs,
energy, power sector reform, privatization, sustainable development, and justice and development. He is
currently a Fellow in Residence of the Philippine Center for Economic Development (PCED) at the
University of the Philippines School of Economics. He also serves as an independent director of several
private companies, and is a Board Member & Research Fellow, Center for the Advancement of Trade
Integration and Facilitation (CATIF). Mr. Lotilla also served as the Secretary of the Department of Energy
from 2005 to 2007.
-#J,* #
!
, retired on 31 May 2011 from the University of the Philippines (U.P.) as Professor of
Geology after 45 years of service teaching courses in Economic Geology, Geochemistry and
Crystallography. He was Director of the UP National Institute of Geological Sciences from 1987 to 1993.
In oil and mineral exploration, Dr. Austria started as Consultant of Trans+Asia Oil & Energy Development
Corp. in 1974 and was serving as Executive Vice President of Trans+Asia by the time he retired in 2003.
48, 4
" has a Bachelor of Arts degree from the Ateneo de Manila University, and his past
positions include having served as Chairman & CEO of United Coconut Planters Bank and China Banking
Corporation, and President & CEO of AsianBank Corporation, The Philippine Banking Corporation and
Philippine Bank of Communications. His present positions include serving as the Chairman of the Board
of Directors of Hyundai Asia Resources, Inc. and Chairman of the Boards of Trustees of Ateneo de
Manila University and the PLDT Beneficial Trust Fund. Mr. Go also serves as a member of the Boards of
Directors of Metro Pacific Investment Corporation, PLDT Communications and Energy Ventures, Inc.,
ABC Development Corporation, Mediaquest Holdings, Inc., AB Capital & Investment Corporation, and
Vicsal Investment Corporation. He is also an honorary Consul of the Republic of Senegal.
90
While all employees are expected to make a significant contribution to the Company, there is no one
particular employee, not an executive officer, expected to make a significant contribution to the business
of the Company on his own. Other than the aforementioned Directors and Executive Officers, there are
no other employees of the Company who may have significant influence in the Company’s major and/or
strategic planning and decision+making.
Mr. Ramon R. del Rosario, Jr. is the brother of Mr. Victor J. del Rosario.
The Company is not aware of any adverse events or legal proceedings during the past five years that are
material to the evaluation of the ability or integrity of its directors or executive officers.
Except for reasonable per diems, directors, as such, shall be entitled to receive only such compensation
as may be granted to them by the vote of the stockholders representing at least a majority of the
outstanding capital stock at a regular or special meeting of the stockholder. In no case shall the total
yearly compensation of directors, as such, exceed 10% of the net income before income tax of the
Corporation during the preceding year.
The Company’s By+Laws further provide that the Board shall fix the salaries and bonuses of all officers
enumerated in this Article VI. The compensation of all other officers shall be left to the discretion of the
President. The fact that any officer is a director shall not preclude him from receiving a salary or bonus or
from voting upon the resolution fixing the same.
The following table shows the compensation of the directors and officers for the past two completed fiscal
years and estimated to be paid for the ensuing fiscal year.
B# - " C
Year
Directors' Fee
2014 (Estimated)
550,000
2013
140,000
2012
+
2011
+
NAME
POSITION
Chairman
Francisco L. Viray
President & CEO
91
EVP
EVP+Treasurer
Mariejo P. Bautista
VP+Controller
Juan J. Diaz
Corporate Secretary
Alan T. Ascalon
Benjamin S. Austria
Senior Adviser
a
Year
2014 (Estimated)
Total Officers' Salary
2,049,905
Bonus
+
2013
1,229,943
+
2012
+
+
2011
+
+
G
Year
2014 (Estimated)
Total Salary & Fees
2,599,905
Bonus
+
2012
1,369,943
+
2012
+
+
2011
+
+
* Other Officers do not receive compensation directly from the Company
As of report date, all directors are entitled to a per diem of P10,000 for every board meeting attended.
*./"2*-#
"# ,0
- 8--# +-
"*.,#2 ,#4 7-0! 3-
$$ 0-
There are no special employment contracts between the Company and its named executive officers.
Under Article VI, Section 2 of the Company’s By+Laws, the Chairman of the Board, the Vice Chairman,
the President, the Vice President(s), the General Manger, the Secretary and the Treasurer shall be
elected annually by affirmative vote of a majority of all the members of the Board. Each officer shall hold
office until his successor is elected and qualified in his stead, or until he shall have resigned or shall have
been removed in the manner hereinafter provided. Such other officers as may from time to time be
elected or appointed by the Board shall hold office for such period, have such authority and perform such
duties as are provided in these By+Laws or as the Board may determine. The Chairman of the Board, the
Vice Chairman and the President shall be chosen from among the directors, and the Secretary shall be a
resident and a citizen of the Philippines.
, ,#
,#4
. "#
-/4 2 +- 7-0! 3-
$$ 0-
,#4
-0 "
As of the date of this Prospectus, none of the Company’s directors and executive officers holds any
warrants or options in the Company.
92
+-
,#5-*-#
Except as described above, there are no other arrangements pursuant to which any of the Company’s
directors and officers was compensated, or is to be compensated, directly or indirectly since the
Company’s incorporation in 28 September 1994.
The Issuer’s parent company, TA Oil, is the only record and/or beneficial owner of 5% or more of the
Company’s voting securities prior to the Dividend Distribution.
/- "$
/,
,*- ,#4 44 "$ -0" 4 8#,#4 -/, "# + .
8 +
!-
Common
Trans+Asia Oil and
Energy
Development
Corporation
th
11 Floor, PHINMA
Plaza, 39 Plaza
Drive, Rockwell
Center, Makati City
,*- "$
-#-$ 0 ,/ 8#,#4 -/, "# + .
8 + -0" 4
8#Trans+Asia Oil
and Energy
Development
Corporation
;-# + .
Filipino
" "$ +, -/4 B #0/!4+, - +-/4 2
#"* #-- -$" 3 4-#4
-0/, , "#C
249,999,989
F "$ " ,/
! ,#4 #5
+, -
99.99%
After the Dividend Distribution, the list of record and/or beneficial owners of 5% or more of the Company’s
voting securities shall be as follows:
/- "$
/,
Common
Common
,*- ,#4
44 - "$
-0" 4 8#,#4 -/, "# + .
8 +
!-
,*- "$
-#-$ 0 ,/ 8#,#4 -/, "# + .
8 + -0" 4
8#-
Trans+Asia Oil and
Energy
Development
Corporation
11th Floor,
PHINMA Plaza, 39
Plaza Drive,
Rockwell Center,
Makati City
PCD Nominee
Corporation
Trans+Asia Oil and
Energy
Development
Corporation
Filipino
" "$ +, -/4 B #0/!4+, - +-/4 2
#"* #-- -$" 3 4-#4
-0/, , "#C
126,838,679
PCD Nominee
Corporation
(net of PHINMA
Corp and PHINMA
Inc. holdings)
Filipino
101,454,266
;-# + .
F "$ " ,/
! ,#4 #5
+, 50.74%
40.58%
93
As regards security ownership of management, the table below shows the beneficial ownership of the
directors and officers of the Company in the following:
5
:
+
/- "$
/,
(7
,*- "$
-#-$ 0 ,/
,
8#-
(as of Record Date, 5 August 2013)
,
*"!# ,#4
;-#
+.
F "$
/,
(Direct and Indirect)
Filipino
0.34%
Filipino
0.18%
, ! - "$
8#- + .
-#-$ 0 ,/
Common
Common
16,633,51
3
8,707,926
Common
Francisco L. Viray
8,429,730
Filipino
0.17%
Common
Oscar J. Hilado
4,500,000
Filipino
0.09%
Common
Roberto M. Laviña
3,569,887
Filipino
0.07%
Common
Benjamin S. Austria
1,390,011
Filipino
0.02%
Common
1,263,901
Filipino
0.03%
Common
Mariejo P. Bautista
433,227
Filipino
0.01%
Common
400,013
Filipino
0.01%
Common
Alan T. Ascalon
71,295
(Direct)
Filipino
<0.01%
Common
Juan J. Diaz
66,211
Filipino
<0.01%
" -@ “Indirect” means TA Oil shares are held in PCD Nominee Corporation for the beneficial owner.
5
:
/- "$
/,
#
.
,*- "$
,
-#-$ 0 ,/
" 7
8#-
7
4.
$
*"!# ,#4 , ! - "$
-#-$ 0 ,/ 8#- + .
;-# + .
F "$
/,
Common
424,155
Filipino
0.17%
Common
222,053
Filipino
0.09%
Common
Francisco L. Viray
214,959
Filipino
0.09%
Common
Oscar J. Hilado
114,751
Filipino
0.05%
Common
92,320
Filipino
0.04%
Common
Roberto M. Laviña
91,033
Filipino
0.04%
Common
Benjamin S. Austria
35,445
Filipino
0.01%
Common
32,230
Filipino
0.01%
Common
Mariejo P. Bautista
11,047
Filipino
<0.01%
Common
10,201
Filipino
<0.01%
Common
Alan T. Ascalon
1,818
(Direct)
Filipino
<0.01%
Common
Juan J. Diaz
1,688
Filipino
<0.01%
Common
Raphael Perpetuo M. Lotilla
1
(Direct)
Filipino
<0.01%
Common
Romeo L. Bernardo
1
(Direct)
Filipino
0.00%
Common
Edward S. Go
1
(Direct)
Filipino
0.00%
94
None of the stockholders are under a voting trust or similar agreement.
The Company is not aware of any arrangements that may result in a change in control of the company.
The Company was not involved in transactions or series of similar transactions in the last two years with a
corporation (or its subsidiary) in which any of the Company’s directors, executive officers or stockholders
owned 10% or more of the total outstanding shares, and members of their immediate family had or is to
have a direct or indirect material interest.
95
The stockholders of the Company, their respective number of shares before and after the property
dividend declaration, and the corresponding percentage of these shares out of the total common shares
outstanding, are as follows:
" -@ The following is a list of stockholders as of record; the beneficial ownership of the following stockholders in
Shares held by PCDNC is described in pages 93+94 of this Prospectus.
-$" ,*- "$
"01+"/4-
/, "$
-0! -
3 4-#4
!* - "$
+, -
! "#
!
$-
F "$
,#4 #5
+, -
3 4-#4
!* - "$ +, -
! "#
!
F "$
,#4 #5
+, -
Trans+Asia Oil and Energy
Development Corp.
Common
249,999,989
99.99%
126,838,679
50.74%
Common
1
<0.01%
45,468
0.02%
Oscar J. Hilado
Common
1
<0.01%
25,501
0.01%
Common
1
<0.01%
12,751
0.01%
Francisco L. Viray
Common
1
<0.01%
114,194
0.05%
Roberto M. Laviña
Common
1
<0.01%
1,582
0.00%
Common
1
<0.01%
19,822
0.01%
Raphael Perpetuo M. Lotilla
Common
1
<0.01%
1
<0.01%
Common
1
<0.01%
41,454
0.02%
Common
1
<0.01%
5,101
<0.01%
Romeo L. Bernardo
Common
1
<0.01%
1
<0.01%
Edward S. Go
Common
1
<0.01%
1
<0.01%
PCD Nominee Corporation
Common
+
+
101,454,266
40.58%
Common
+
+
11,457,956
4.58%
Common
+
+
5,147,190
2.06%
Samuel Uy Chua
Common
+
+
1,020,000
0.41%
EMAR Corporation
Common
+
+
950,740
0.38%
Bacnotan Consolidated Industries,
Inc.
Phil. Investment Mgt. Consultants,
Inc.
Francisco GenaroOzamiz Lon
Common
+
+
423,300
0.17%
Albert Mendoza &/or Jeannie
Mendoza
Common
+
+
76,193
0.03%
Albert Awad
Common
+
+
74,260
0.03%
Phil. Remnants Co., Inc.
Common
+
+
71,431
0.03%
Peter Mar or Annabelle C. Mar
Common
+
+
52,020
0.02%
Renato O. Labasan
Common
+
+
38,760
0.02%
Teresita A. Dela Cruz
Common
+
+
38,306
0.02%
Belek, Inc.
Common
+
+
37,842
0.02%
Rizalino G. Santos
Common
+
+
36,643
0.01%
Joseph D. Ong
Common
+
+
35,640
0.01%
William How &/or Benito How
Common
+
+
34,003
0.01%
Others (Aggregate)
Common
+
+
1,946,895
0.76%
&6) ))) )))
%)) ))F
&6) ))) )))
%)) ))F
" ,/
!
,#4 #5
96
)
-
.
After the Dividend Distribution, the percentage ownership of the Company’s shares of stock by Filipino
citizens and non+Filipino shareholders are 98.67% and 1.33%, respectively.
/
.
As a result of the property dividend to TA Oil shareholders, the Company will have a total of 3,275
stockholders (excluding TA Oil), 1,734 of whom own at least one board lot each.
(
&)
5
:
+
(7
,
,
TA Oil is the Company’s single largest shareholder and, as of the date hereof, it directly owns
approximately AA AAF of the Company’s issued share capital. After the distribution of the Company’s
shares as property dividends to TA Oil’s stockholders, TA Oil will hold approximately 6) ?9F of the
Company’s issued share capital.
TA Oil was incorporated in the Philippines in on 8 September 1969 to engage primarily in power
generation and power supply, with secondary investments in oil and gas exploration activities. Its shares
are listed in the PSE. As of Record Date on 5 August 2013, TA Oil had an authorized capital of
8,400,000,000 shares with a par value of P1.00 and issued, outstanding and fully paid shares of
9 >(& >6& ?6?.
The top 20 stockholders of TA Oil as of Record Date on 5 August 2013 are as follows:
Name of Stockholder
1
PCD NOMINEE CORPORATION (FILIPINO)
2
Number of Shares
% of Outstanding
Shares
3,856,644,312
79.31%
PHINMA CORPORATION
449,331,621
9.24%
3
PHIL. INVESTMENT MGT. CONSULTANTS, INC.
201,850,613
4.15%
4
PCD NOMINEE CORPORATION (NON+FILIPINO)
153,653,876
3.16%
5
SAMUEL UY CHUA
40,000,000
0.82%
6
EMAR CORPORATION
37,283,937
0.77%
7
FRANCISCO GENARO OZAMIZ LON
16,600,000
0.34%
8
FRANCISCO L. VIRAY
4,478,188
0.09%
9
ALBERT MENDOZA &/OR JEANNIE MENDOZA
2,987,967
0.06%
10
ALBERT AWAD
2,912,188
0.06%
11
PHIL. REMNANTS CO., INC.
2,801,218
0.06%
12
PETER MAR OR ANNABELLE C. MAR
2,040,000
0.04%
13
RAMON R. DEL ROSARIO, JR.
1,783,038
0.04%
14
VICTOR JUAN DEL ROSARIO
1,625,639
0.03%
15
RENATO O. LABASAN
1,520,000
0.03%
6
Information on the stockholders, such as company profile, capital structure, shareholders, directors and officers were based on the
company’s website and recent General Information sheets available in the Securities and Exchange Commission.
97
Name of Stockholder
Number of Shares
% of Outstanding
Shares
16
TERESITA A. DELA CRUZ
1,502,221
0.03%
17
BELEK, INC.
1,484,002
0.03%
18
RIZALINO G SANTOS
1,437,001
0.03%
19
JOSEPH D. ONG
1,397,663
0.03%
20
WILLIAM HOW &/OR BENITO HOW
1,333,457
0.03%
4,782,666,941
98.35%
TOTAL
As of the date of this Prospectus, TA Oil’s board of directors and executive officers are as follows:
0
*
,*Oscar J. Hilado
Ramon R. Del Rosario, Jr.
Francisco L. Viray
Roberto M. Laviña
Raymundo O. Feliciano
Ricardo V. Camua
David L. Balangue
Guillermo D. Luchangco
&'
" "#
Chairman
Member
Member
Member
Member
Member
Independent Director
.
,*Oscar J. Hilado
Ramon R. Del Rosario, Jr.
Francisco L. Viray
Roberto M. Laviña
Juan J. Diaz
Raymundo A. Reyes, Jr.
Rizalino G. Santos
Virgilio R. Francisco, Jr.
Mariejo P. Bautista
Cecille B. Arenillo
Frederick C. Lopez
Manuel Karim G. Garcia
Danilo L. Panes
Alan T. Ascalon
Miguel Romualdo T. Sanidad
#; !3
,
" "#
Chairman
Vice Chairman
President & CEO
SEVP / Treasurer
Corporate Secretary
SVP & CFO
SVP+Energy Resources Development
SVP – Power Business
Senior Vice President
VP+Controller
VP & Compliance Officer
VP+Material Mgt.
VP+Strategic Planning
AVP+Renewable Energy
AVP+Asst. Corporate Secretary
(
.
6
PHINMA Corporation, formerly Bacnotan Consolidated Industries, Inc, was incorporated on 12 March
1957. Its principal activity is investment in shares of various subsidiaries and affiliates engaged in the
manufacture of galvanized and pre+painted coils and sheets, property development, power and energy
98
development and education. The ultimate parent company of PHN and its subsidiaries is Philippine
Investment Management (PHINMA), Inc. PHN is listed in the PSE. The principal stockholders of PHN are
PHINMA and Philippine Depository and Trust Corporation.
#" ,,
3
#; !3 $
6
Philippine Investment Management (PHINMA), Inc. was established in 1956 by a group of Filipino
industrialists. It has become the management and holding company of some corporations that played a
key role in the Philippines' basic industries. These include, amongst others, the manufacture of cement,
steel, and other construction materials, paper and packaging, energy, trading, education, and property
development. PHINMA's mission is to create and manage enterprises in development+oriented industries
in order to foster economic development while guided by a commitment to care for the community and for
the environment.
PHINMA’s principal stockholders are EMAR Corporation, a Filipino company principally owned by the
heirs of the late former Ambassador Ramon V. del Rosario and the members of his immediate family,
Mariposa Properties, Inc. which is owned by Mr. Oscar J. Hilado and the members of his immediate
family and Dr. Magdaleno B. Albarracin, Jr. In so far as EMAR Corporation and Mariposa Properties, Inc.
are concerned, the Del Rosario and Hilado Families are expected to direct the voting of the shares held
by the said corporations.
# 7!
,
Philippine Depository and Trust Corporation is a wholly+owned subsidiary of Philippine Central
Depository, Inc. which acts as trustee+nominee for all shares lodged in the PCD system. It was formerly
known as PCD Nominee Corporation. The beneficial owners of such shares are PCD’s participants who
hold the shares on their behalf or in behalf of their clients.
PCD is a private institution established in March 1995 to improve operations in securities transactions.
PCD seeks to provide a fast, safe and highly efficient system for securities settlement. The PCD was
organized to implement an automated book+entry system of handling securities transaction in the
Philippines.
The Company was restructured in December 2012 by TA Oil as a wholly+owned subsidiary that will own,
develop and operate the various petroleum and energy assets of TA Oil. In December 21, 2013, pursuant
to various assignment agreements, TA Petroleum acquired TA Oil’s interests in four petroleum SCs in the
Philippines. These contracts are described in the section on “Material Contracts” of this Prospectus.
99
Please refer to Annex A for the Audited Interim Consolidated Financial Statements of the Company as at
31 March 2014 and for the three months ended 31 March 2014 and 2013 and the Audited Consolidated
Financial Statements as at and for the years ended 31 December 2013, 2012 and 2011.
100
The statements made regarding taxation in the Philippines are based on the laws in force at the date
hereof and are subject to any changes in law occurring after such date. The following summary does not
purport to be a comprehensive description of all of the tax considerations that may be relevant to a
decision to invest in the Shares and does not purport to deal with the tax consequences applicable to all
categories of investors, some of which (such as dealers in securities) may be subject to special rates.
Prospective purchasers of the Shares are advised to consult their own tax advisers concerning the tax
consequences of their investment in the Shares.
A. Taxation of Dividends
1. Dividends on the Shares received by corporations organized and existing under Philippine
laws or domestic corporations, as well as those received by resident foreign corporations
shall not be subject to tax. Dividends received by nonresident foreign corporations, however,
are generally subject to a 30% final withholding tax, subject to preferential tax rates pursuant
to applicable income tax treaties between the Philippines and the country of domicile of such
nonresident foreign corporation. A reduced tax on dividends received by a nonresident
foreign corporation may also apply depending on the treatment by the country of the
nonresident foreign corporation of foreign+sourced dividends.
A foreign corporation or a corporation organized, authorized and existing under the laws of
any foreign country shall be deemed a resident foreign corporation if it is engaged in trade or
business in the Philippines.
In a revenue memorandum order issued in 2010, the Bureau of Internal Revenue (“BIR”)
requires that all availment of tax treaty benefit or preference should be preceded by an
application for tax treaty relief application, filed with the International Tax Affairs of the BIR.
The applications for tax treaty relief must be filed before the transaction, which is defined as
the first taxable event, failure of which shall have the effect of disqualifying the application.
However, in a decision dated 19 August 2013 in the case entitled Deutsche Bank AG Manila
Branch v. Commissioner of Internal Revenue (G.R. No. 188550), the Supreme Court has
ruled that the BIR cannot by administrative issuance divest a taxpayer’s entitlement to relief
under applicable income tax treaties for failure to apply for tax treaty relief applications within
the periods prescribed. To our knowledge, the BIR has filed a motion for reconsideration
before the Supreme Court to question the decision; thus, the decision is not yet final.
2. Dividends received by individual Philippine citizens and resident aliens are subject to a 10%
final withholding tax. Dividends received by non+resident alien individuals engaged in trade
or business in the Philippines are subject to a final withholding tax of 20%, while those
received by nonresident alien individuals are subject to a final withholding tax of 25%, subject
to preferential tax rates and applicable income tax treaties between the Philippines and the
country of domicile of such nonresident alien individuals.
B. Taxation of Sales, Exchanges, Barters or Transfers of Shares of Stock
1. Capital gains tax of 5% on the net capital gains not in excess of Php100,000, and 10% on the
net capital gains realized during the year in excess of Php100,000 shall be imposed on the
sale, exchange or other disposition of shares of stock in a domestic corporation except
shares sold through the facilities of the PSE.
101
2. Sale, exchanges or other dispositions of the Shares which are effected through the facilities
of the PSE shall be subject to a stock transaction tax of 0.5% of the gross selling price or
gross value in money of the Shares. The stock transaction tax is a percentage tax and is in
lieu of the capital gains tax imposed on sale of shares outside the facilities of the PSE.
Notwithstanding its classification as a percentage tax, the BIR in previous opinions have
confirmed that the capital gains tax exemption under applicable income tax treaties will also
apply to the stock transaction tax. However, in a ruling issued in 2007 on a tax treaty relief
application involving the income tax treaty between the Philippines and Singapore, the BIR
maintained that the stock transaction tax, being a percentage tax, is not identical or
substantially similar to the capital gains tax on the sale of shares in a domestic corporation,
and hence, not covered by the exemption provided in the said treaty.
In Revenue Regulations No. 16+2012, dated December 7, 2012, the BIR ruled that in order to
be subject to the 0.5% stock transaction tax, the issuer should meet the minimum public
ownership requirement prescribed by the PSE. To our knowledge, this interpretation has
been challenged by the PSE which maintains that the National Internal Revenue Code
imposes the 0.5% stock transaction tax on sales, barters or exchanges of shares of stock
listed through the facilities of the PSE without qualification.
3. A value+added tax of 12.0% may generally be imposed on the gross income earned by
dealers in securities on the sale of shares and on the commission earned by the PSE+
registered broker which is generally passed on to the client.
4. Documentary stamp tax at the rate of P0.75 on each P200.00, or fractional part thereof, of
the par value of the shares shall be due on sales, or agreements to sell, or memoranda of
sales, or deliveries, or transfers of shares in any domestic corporation. The documentary
stamp tax is imposed on the person making, signing, issuing, accepting or transferring the
document. No documentary stamp tax, however, is due on sales, barters or exchanges of
shares listed and traded through the facilities of the PSE.
5. Upon the death of a registered individual holder, whether such an individual was a citizen of
the Philippines or an alien, regardless of residence, the Shares shall be transferred to the
heirs of the registered holder by way of succession and shall form part of the net estate of the
decedent which will be subject to estate tax at progressive rates ranging from 5% to 20%,
based on the value of the net estate of the decedent in excess of P200,000.00.
6. Individual registered holders, whether or not citizens or residents of the Philippines, who
transfers shares by way of gift or donation shall be liable for donor’s tax on such transfers at
progressive rates ranging from 2% to 15% of the total net gifts made during the calendar year
in excess of P100,000. If the transfer by way of gift or donation is made to a stranger, the
donor’s tax shall be 30% of the net gifts. A stranger is one who is not a brother, sister
(whether by whole or half+blood), spouse, ancestor or lineal descendant, or relative by
consanguinity in the collateral line within the fourth degree of relationship.
Estate and gift taxes will not be collected in respect of intangible personal property, such as
shares of stock, (a) if the deceased at the time of death, or donor at the time of donation, was
a citizen and resident of a foreign country which at the time of his death or donation did not
impose a transfer tax of any character in respect of intangible personal property of citizens of
the Philippines not residing in that foreign country, or (b) if the laws of the foreign country of
which the deceased or the donor was a citizen and resident at the time of his death or
donation allow a similar exemption from transfer or death taxes of every character or
description in respect of intangible personal property owned by citizens of the Philippines not
resident in that foreign country.
102
The information presented in this section has been extracted from publicly available documents which
have not been prepared or independently verified by the Company or its affiliates and advisors in
connection with the Dividend Distribution and Listing.
-$
" 2
The Philippines initially had two stock exchanges, the Manila Stock Exchange, which was organised in
1927, and the Makati Stock Exchange, which began operations in 1963. Each exchange was
self+regulating, governed by its respective Board of Governors elected annually by its members.
Several steps initiated by the Government have resulted in the unification of the two bourses into the
PSE. The PSE was incorporated in 1992 by officers of both the Makati and the Manila Stock Exchanges.
In March 1994, the licences of the two exchanges were revoked. While the PSE maintains two trading
floors, one in Makati City and the other in Pasig City, these floors are linked by an automated trading
system which integrates all bid and ask quotations from the bourses.
In June 1998, the SEC granted the PSE Self+Regulatory Organisation (“SRO”) status, allowing it to
impose rules as well as implement penalties on erring trading participants and listed companies. On
8 August 2001, the PSE completed its demutualization, converting from a non+stock member+governed
institution into a stock corporation in compliance with the requirements of the SRC. The PSE has an
authorized capital stock of 36.8 million, of which 15.3 million is subscribed and fully paid+up. Each of the
184 member+brokers was granted 50,000 shares of the new PSE at a par value of P1.00 per share. In
addition, a trading right evidenced by a “Trading Participant Certificate” was immediately conferred on
each member+broker allowing the use of the PSE’s trading facilities. As a result of the demutualization,
the composition of the PSE Board of Governors was changed, requiring the inclusion of seven brokers
and eight non+brokers, one of whom is the President. On 15 December 2003, the PSE listed its shares by
way of introduction at its own bourse as part of a series of reforms aimed at strengthening the Philippine
securities industry.
Companies are listed either on the PSE’s Main Board or on the Small, Medium and Emerging Board,
classified into financial, industrial, holding firms, property, services, and mining and oil sectors. Each
index represents the numerical average of the prices of component stocks. The PSE shifted from full
market capitalization to free float market capitalization effective 3 April 2006 simultaneous with the
migration to the free float index and the renaming of the PHISIX to PSEi. The PSEi includes 30
companies listed on the PSE.
With the increasing calls for good corporate governance, the PSE has adopted an online disclosure
system to improve the transparency of listed companies and to protect the investing public.
The table below sets forth movements in the composite index from 1995 to May 2014 and shows the
number of listed companies, market capitalisation, and value of shares traded for the same period:
103
-/-0 -4
"01 70+,#5-
,,
"*." #4-7 ,
/" #5
Calendar Year
1995 .....................................................
1996 .....................................................
1997 .....................................................
1998 .....................................................
1999 .....................................................
2000 .....................................................
2001 .....................................................
2002 .....................................................
2003 .....................................................
2004 .....................................................
2005 .....................................................
2006 .....................................................
2007 .....................................................
2008 .....................................................
2009 .....................................................
2010PPPPPPPPPPPPP.
2011PPPPP..............................
2012PPPPP..............................
2013................................................
2014 (Up to May 2014) ..................
#
1
#
&'
# ,/
!* - "$
-4
"*.,# -
55 -5, , 1,. ,/ ;, "#
"* #-4
,/!- "$
! #"3-
₱
2,594.2
3,170.6
1,869.2
1,968.8
2,142.9
1,494.5
1,168.1
1,014.4
1,442.4
1,822.8
2,096.0
2,982.5
3,621.6
1,872.9
3,052.7
4,201.1
4,372.0
5,812.7
5,899.8
6,647.7
205
216
221
221
223
226
228
232
235
236
237
240
244
246
248
253
253
254
257
260
1,545.7
2,121.1
1,261.3
1,373.7
1,936.5
2,576.5
2,143.3
2,083.2
2,973.8
4,766.2
5,948.4
4,277.8
7,977.6
4,069.2
6,029.1
8,866.1
8,697.0
10,930.1
11,931.3
13,093.2
379.0
668.9
588.0
378.9
668.8
58.61
407.2
780.9
357.6
206.6
383.5
1,145.3
1,338.3
763.9
994.2
1,207.4
1,422.6
1,771.7
2,546.2
799.6
#5
A company applying for listing in the Main Board of the PSE is generally required to comply with
requirements which include, but may not be limited to, the following:
1. A track record of profitable operations for the three full fiscal years immediately preceding the
application for listing;
2. Have been engaged in materially the same businesses and must have a proven track record of
management through the last three years prior to the filing of the application;
3. Positive stockholders’ equity;
4. Market capitalization at listing of at least P500 million;
5. An operating history of at least three years prior to its application for listing;
6. A minimum authorized capital stock of P500 million, of which a minimum of twenty+five percent
must be subscribed and fully paid;
7. A minimum offering to the public based on a schedule in which the required public offer varies
with the expected market capitalization upon listing;
8. Upon listing, at least one thousand stockholders, each owning stocks equivalent to at least one
board lot;
9. When required by the PSE, to have an independent appraiser duly accredited by the PSE and the
SEC determine the value of the company’s assets;
10. Subscribed shares of the same type and class applied for listing shall be paid in full; and
104
11. Have an investor relation program to ensure that information affecting the company are
communicated effectively to investors. Such program shall include, at the minimum, a corporate
website that contains company information, news, financial reports, disclosures, investor FAQs,
investor contacts and stock information.
,4 #5
The PSE is a double auction market. Buyers and sellers are each represented by stockbrokers. To trade,
bids or ask prices are posted on the PSE’s electronic trading system. A buy (or sell) order that matches
the lowest asked (or highest bid) price is automatically executed. Buy and sell orders received by one
broker at the same price are crossed at the PSE at the indicated price. Payment for purchases of listed
securities must be made by the buyer on or before the third trading day after the trade.
Beginning 2 January 2012, trading on the PSE starts at 9:30 a.m. until 12:00 p.m. After a one+and+a half
hour lunch break, trading resumes at 1:30 p.m. and ends at 3:30 p.m. with a ten+minute extension during
which transactions may be conducted, provided that they are executed at the last traded price and are
only for the purpose of completing unfinished orders. Trading days are Monday to Friday, except legal
holidays when the BSP clearing house is closed.
Minimum trading lots range from 5 to 1,000,000 shares depending on the price range and nature of the
security traded. Odd+sized lots are traded by brokers on a board specifically designed for odd+lot trading.
To maintain stability in the stock market, daily price swings are monitored and regulated. Under current
PSE regulations, when the price of a listed security moves up by 50.0 %, or down by 50.0%, in one day
(based on the last traded price or adjusted closing price, as the case may be), ), or the maximum
allowable price difference between an update in the Last Traded Price (“LTP”) of a given Security and its
preceding LTP that is equal to a percentage set by the PSE based on its trade frequency is breached, the
price of that security is automatically frozen by the PSE, unless there is an official statement from the
relevant company or a Government agency justifying such price fluctuation, in which case the affected
security can still be traded but only at the frozen price. If the issuer fails to submit such explanation, a
trading halt is imposed by the PSE on the listed security the following day. Resumption of trading shall be
allowed only when the disclosure of the issuer is disseminated, subject again to the trading band.
The maximum allowable price difference between an update in the LTP of a given security and its
preceding LTP percentages are as follows: Stocks that traded 20 times or less in the past six months
have a threshold of 20%; stocks that traded 500 times or less but greater than 20 times in the past six
months have a threshold of 15%; stocks that traded more than 500 times in the past six months have a
threshold of 10%.
- /-*-#
The Securities Clearing Corporation of the Philippines (“SCCP”) is a wholly+owned subsidiary of the PSE,
and was organized primarily as a clearance and settlement agency for SCCP+eligible trades executed
through the facilities of the PSE. It is responsible for (a) synchronising the settlement of funds and the
transfer of securities through Delivery versus Payment clearing and settlement of transactions of Clearing
Members, who are also PSE Brokers; (b) guaranteeing the settlement of trades in the event of a Trading
Participant’s default through the implementation of its Fails Management System and administration of
the Clearing and Trade Guaranty Fund, and (c) performance of Risk Management and Monitoring to
ensure final and irrevocable settlement.
SCCP settles PSE trades on a three+day rolling settlement environment, which means that settlement of
trades takes place three days after the transaction date (T+3). The deadline for settlement of trades is
12:00 noon of T+3. Securities sold should be in scripless form and lodged under the Philippine Depository
& Trust Corp.’s (PDTC) book+entry system. Each PSE Broker maintains a Cash Settlement Account with
one of the two existing settlement banks of SCCP, which are Banco de Oro Unibank, Inc. and Rizal
105
Commercial Banking Corporation. Payment for securities bought should be in good, cleared funds and
should be final and irrevocable. Settlement is presently on a broker level.
SCCP implemented its new clearing and settlement system called Central Clearing and Central
Settlement (“CCCS”) on 29 May 2006. CCCS employs multilateral netting whereby the system
automatically offsets “buy” and “sell” transactions on a per issue and a per flag basis to arrive at a net
receipt or a net delivery security position for each Clearing Member. All cash debits and credits are also
netted into a single net cash position for each Clearing Member. Novation of the original PSE trade
contracts occurs, and SCCP stands between the original trading parties and becomes the Central
Counterparty to each PSE+eligible trade cleared through it.
0 ./-
,4 #5
In 1995, the Philippine Depository and Trust Corporation (formerly the Philippine Central Depository, Inc.)
was organized to establish a central depository in the Philippines and introduce scripless or book+entry
trading in the Philippines. On 16 December 1996, the PDTC was granted a provisional licence by the
SEC to act as a central securities depository.
All listed securities at the PSE have been converted into book+entry settlement in the PDTC. The
depository service of the PDTC provides the infrastructure for lodgement (deposit) and upliftment
(withdrawal) of securities, pledge of securities, securities lending and borrowing and corporate actions
including shareholders’ meetings, dividend declarations and rights offerings. The PDTC also provides
depository and settlement services for non+PSE trades of listed equity securities. For transactions on the
PSE, the security element of the trade will be settled through the book+entry system, while the cash
element will be settled through the current settlement banks, Rizal Commercial Banking Corporation and
Banco de Oro Unibank, Inc.
In order to benefit from the book+entry system, securities must be immobilized in the PDTC system
through a process called lodgement. Lodgement is the process by which shareholders transfer legal title
(but not beneficial title) over their shares of stock in favour of PCD Nominee Corporation (“PCD
Nominee”), a corporation wholly owned by the PDTC, whose sole purpose is to act as nominee and legal
title holder of all shares of stock lodged in the PDTC. “Immobilization” is the process by which the warrant
or share certificates of lodging holders are cancelled by the transfer agent and the corresponding transfer
of beneficial ownership of the immobilized shares in the account of PCNC through the PDTC participant
will be recorded in the Company’s registry. This trust arrangement between the participants and PDTC
through the PCD Nominee is established by and explained in the PDTC Rules and Operating Procedures
approved by the SEC. No consideration is paid for the transfer of legal title to PCD Nominee. Once
lodged, transfers of beneficial title of the securities are accomplished via book+entry settlement.
Under the current PDTC system, only participants (e.g. brokers and custodians) will be recognized by the
PDTC as the beneficial owners of the lodged equity securities. Thus, each beneficial owner of shares
through his participant will be the beneficial owner to the extent of the number of shares held by such
participant in the records of the PCD Nominee. All lodgements, trades and uplifts on these shares will
have to be coursed through a participant. Ownership and transfers of beneficial interests in the shares will
be reflected, with respect to the participant’s aggregate holdings, in the PDTC system and, with respect to
each beneficial owner’s holdings, in the records of the participants. Beneficial owners are thus advised
that in order to exercise their rights as beneficial owners of the lodged shares, they must rely on their
participant+brokers or participant+custodians.
Any beneficial owner of shares who wishes to trade his interests in the shares must course the trade
through a participant. The participant can execute PSE trades and non+PSE trades of lodged equity
securities through the PDTC system. All matched transactions in the PSE trading system will be fed
through the SCCP, and into the PDTC system. Once it is determined on the settlement date (trading date
plus three trading days) that there are adequate securities in the securities settlement account of the
participant+seller and adequate clear funds in the settlement bank account of the participant+buyer, the
106
PSE trades are automatically settled in the SCCP CCCS system, in accordance with the PDTC Rules and
Operating Procedures. Once settled, the beneficial ownership of the securities is transferred from the
participant+seller to the participant+buyer without the physical transfer of stock certificates covering the
traded securities.
If a stockholder wishes to withdraw his stockholdings from the PDTC system, the PDTC has a procedure
of upliftment under which the PCD Nominee will transfer back to the stockholder the legal title to the
shares lodged. The uplifting shareholder shall follow the Rules and Operating Procedures of the PDTC for
the upliftment of shares lodged under the name of PCD Nominee. The transfer agent shall prepare and
send a Registry Confirmation Advice to the PDTC covering the new number of shares lodged under PCD
Nominee. The expenses for upliftment are for the account of the uplifting shareholder.
The difference between the depository and the registry would be on the recording of ownership of the
shares in the issuing corporation’s books. In the depository set+up, shares are simply immobilized,
wherein customers’ certificates are cancelled confirmation advices is issued in the name of PCD Nominee
Corp. to confirm new balances of the shares lodged with the PDTC. Transfers among/between broker or
custodian accounts, as the case may be, will only be made within the book+entry system of PDTC.
However, as far as the issuing corporation is concerned, the underlying certificates are in the nominees’
name. In the registry set+up, settlement and recording of ownership of traded securities will already be
directly made in the corresponding issuing company’s transfer agent’s books or system. Likewise,
recording will already be at the beneficiary level (whether it be a client or a registered custodian holding
securities for its clients), thereby removing the broker from its current “de facto” custodianship role.
*-#4-4
!/- "# "45-*-# "$ -0!
-
On 24 June 2009, the PSE apprised all listed companies and market participants through Memorandum
No. 2009+0320 that commencing on 1 July 2009, as a condition for the listing and trading of the securities
of an applicant company, the applicant company shall electronically lodge its registered securities with the
PDTC or any other entity duly authorized by the SEC, without any jumbo or mother certificate in
compliance with the requirements of Section 43 of the SRC. In compliance with the foregoing
requirements, actual listing and trading of securities on the scheduled listing date shall take effect only
after submission by the applicant company of the documentary requirements stated in Article III Part A of
the Revised Listing Rules.
Further, the PSE apprised all listed companies and market participants on 21 May 2010 through
Memorandum No. 2010+0246 that the Amended Rule on Lodgment of Securities under Section 16 of
Article III, Part A of the Revised Listing Rules of the Exchange shall apply to all securities that are lodged
with the PDTC or any other entity duly authorized by the SEC.
For listing applications, the amended rule on lodgement of securities is applicable to:
a. The Rights Shares/securities of the applicant company in the case of an initial public offering;
b. The shares/securities that are lodged with the PDTC, or any other entity duly authorized by the
SEC in the case of a listing by way of introduction;
c.
New securities to be offered and applied for listing by an existing listed company; and
d. Additional listing of securities of an existing listed company.
Pursuant to the said amendment, the PDTC issued an implementing procedure in support thereof to wit:
For new companies to be listed at the PSE as of 1 July 2009 the usual procedure will be observed but the
transfer agent of the companies shall no longer issue a certificate to the PCD Nominee Corporation
107
(“PCNC”) but shall issue a Registry Confirmation Advice, which shall be the basis for the PDTC to credit
the holdings of the depository participants on listing date.
For existing listed companies, the PDTC shall wait for the advice of the transfer agent that it is ready to
accept surrender of PCNC Jumbo Certificates and upon such advice the PDTC shall surrender all PCNC
Jumbo Certificates to the transfer agent for cancellation. The transfer agents shall issue a Registry
Confirmation Advice to PCNC evidencing the total number of shares registered in the name of PCNC in
the issuer’s registry as of the confirmation date.
On or after the listing of the shares on the PSE, any beneficial owner of the shares may apply to PDTC
through his broker or custodian+participant for a withdrawal from the book+entry system and return to the
conventional paper+based settlement. If a stockholder wishes to withdraw his stockholdings from the
PDTC System, the PDTC has a procedure of upliftment under which PCD Nominee will transfer back to
the stockholder the legal title to the shares lodged. The uplifting shareholder shall follow the Rules and
Operating Procedures of the PDTC for the upliftment of shares lodged under the name of PCD Nominee.
The transfer agent shall prepare and send a Registry Confirmation Advice to the PDTC covering the new
number of shares lodged under PCD Nominee. The expenses for upliftment are on the account of the
uplifting shareholder.
Upon the issuance of certificated shares in the name of the person applying for upliftment, such shares
shall be deemed to be withdrawn from the PDTC book+entry settlement system, and trading on such
shares will follow the normal process for settlement of certificated securities. The expenses for upliftment
of beneficial ownership in the shares to certificated securities will be charged to the person applying for
upliftment. Pending completion of the upliftment process, the beneficial interest in the shares covered by
the application for upliftment is frozen and no trading and book+entry settlement will be permitted until
certificated shares shall have been issued by the relevant company’s transfer agent.
The Company will adopt a Manual of Corporate Governance within 180 days from registration of its
shares before the Securities and Exchange Commission, in compliance with the Revised Code of
Corporate Governance. However, to fully comply with the adopted leading practices on good corporate
governance, the Company has amended its By+Laws to include new provisions complying with the
Revised Code of Corporate Governance and the Philippine Stock Exchange’s Corporate Governance
Guidelines
The key institutions include:
"* #, "# ,#4
"3- #,#0-
"** --@
The Nomination and Governance Committee is composed of at least three (3) members of the Board of
Directors and one of whom shall be an Independent Director (Article V+A, Section 1, Bylaws). The said
Committee’s duties are the following:
a)
b)
Review and evaluate the qualifications of all persons nominated to be a director of the
Company and of all nominees to other positions in the Company requiring appointment by
the Board;
Review and endorse to the Board the Compliance Officer’s recommendations in relation to
violations of the revised Code of Corporate Governance and such other circulars, rules
and regulations issued in relation thereto;
108
c)
d)
e)
f)
g)
h)
Recommend Committee membership, appointments, including Committee chairmanship,
to the Board for approval after receiving advice from the Chairman of the Board and
President and with consideration of the desires of individual Board members;
Review annually the Charters of the Committees created by the Board for the purpose of
recommending any needed change(s) to the Board;
Recommend processes and mechanisms for evaluating the performance of the Board, the
Committees created by the Board, and the Corporation’s Officers;
Assess the effectiveness of the Board’s processes and procedures in the election or
replacement of directors;
To comply with all the duties and responsibilities prescribed by the Commission under
applicable laws, rules and regulations;
Such other functions in accordance with Nomination and Governance Committee Charter,
applicable laws, rules and regulations.
(Article V+A, Section 2, Bylaws)
!4 ,#4
1
,#,5-*-#
"** --@
The Audit and Risk Management Committee consists of at least three (3) members of the Board of
Directors, who shall preferably have accounting and finance backgrounds, one of whom is an
Independent Director and another with audit experience. The Chair of the Audit and Risk Management
Committee shall be an Independent Director. (Article V+B: Audit and Risk Management Committee,
Bylaws)
The Committee has the following functions:
a)
b)
c)
d)
e)
f)
g)
h)
i)
Assist the Board in the performance of its oversight responsibility for the financial reporting
process, system of internal control, audit process and monitoring of compliance with
applicable laws, rules and regulations;
Provide oversight over Management’s activities in managing credit, market, liquidity,
operational, legal and other risks of the Corporation. This function shall include a regular
receipt from Management of information on risk exposures and risk management activities;
Perform oversight functions over the Corporation’s internal and external auditors. It should
ensure that the internal and external auditors act independently from each other and that
both auditors are given unrestricted access to all records, properties and personnel to
enable them to perform their respective audit functions;
Review the annual internal audit plan to ensure its conformity with the objectives of the
Corporation. The plan shall include the audit scope, resources and budget necessary to
implement it;
Prior to the commencement of the audit, discuss with the external auditor the nature, scope
and expenses of the audit, and ensure proper coordination if more than one audit firm is
involved in the activity to secure proper coverage and minimize duplication of efforts;
Organize an internal audit department, and consider the appointment of an independent
internal auditor and the terms and conditions of its engagement and removal;
Monitor and evaluate the adequacy and effectiveness of the Corporation’s internal control
system, including financial reporting control and information technology security;
Review the reports submitted by the internal and external auditors;
Review the quarterly, half+year and annual financial statements before their submission to
the Board with particular focus on the following matters:
• Any change/s in accounting policies and practices
• Major judgmental areas
• Significant adjustments resulting from the audit
• Going concern assumptions
• Compliance with accounting standards
• Compliance with tax, legal and regulatory requirements.
109
j)
k)
Coordinate, monitor and facilitate compliance with laws, rules and regulations;
Evaluate and determine the non+audit work if any, of the external auditor, and review
periodically the non+audit fees paid to the external auditor in relation to their significance to
the total annual income of the external auditor and to the Corporation’s overall consultancy
expenses. The Committee shall disallow any non+audit work that will conflict with his duties
as an external auditor or may pose a threat to his independence. The non+audit work, if
allowed, should be disclosed in the Corporation’s annual report;
Establish and identify the reporting line of the Internal Auditor to enable him to properly fulfill
his duties and responsibilities, free from interference from outside parties. He shall
functionally report directly to the Audit and Risk Management Committee;
Such other functions in accordance with applicable laws, rules and regulations.
l)
m)
(Article V+B: Audit and Risk Management Committee, Bylaws)
"*.-# , "#
"** --@
The Compensation Committee consists of at least three (3) members of the Board of Directors and one of
whom is an Independent Director.
The Committee is responsible for establishing policies on remuneration of directors and officers to ensure
that their compensation is consistent with the corporation’s culture, strategy and the business
environment in which it operates.
(Article VI, Sections 1 and 2, Bylaws)
"*./ ,#0-
$$ 0- @
The Board of Directors appoints a Compliance Officer who reports directly to the Chairman. He is
responsible for monitoring compliance by the corporation with the Revised Code of Corporate
Governance and the rules and regulations of regulatory agencies, and if any violations are found, shall
report the matter to the Board and recommend the imposition of appropriate disciplinary actions on the
responsible parties and the adoption of measures to prevent a repetition of the violation. The Compliance
Officer also has the duty to appear before the Commission when summoned in relation to compliance
with the Revised Code of Corporate Governance and related rules and regulations; and issue
certifications and explanations as required under Article 3(M) of the Revised Code of Corporate
Governance. (Section VI, Section 12+A, Bylaws)
7 - #,/
!4 "
The External Auditor audits and examines the books of account of the Company and certifies to the
Board of Directors and the shareholders the annual balances of said books which are prepared at the
close of the said year under the direction of the Treasurer. No director or officer of the Company, and no
firm or corporation of which such officer or director is a member, shall be eligible to discharge the duties
of auditor.
110
:
>
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&)%'
&&
&)%'
Contents Our analysis and conclusions
Appendices Glossary
Senior Vice President and Chief Finance Officer
Trans-Asia Oil and Energy Development Corporation
11th Floor, PHINMA Plaza, 39 Plaza Drive, Rockwell Center,
Makati City, 1200
8 August 2014
Dear Mr. Brion,
Mary Jade T. Roxas – Divinagracia, CFA
Partner
T: +63 (2) 459 2060
F: +63 (2) 845 2806
jade.roxas@ph.pwc.com
This report (the “Report”) has been prepared by Isla Lipana & Co. (“we,” “PwC Philippines,” or
the “Firm”), a member firm of PricewaterhouseCoopers, solely for Trans-Asia Oil and Energy
Development Corporation (“You,” “TA Oil,” “Management,” or the “Client”) in connection with
the issuance of a fairness opinion, from a financial point of view, of the price per share of TransAsia Petroleum Corporation (formerly Trans-Asia (Karang Besar) Petroleum Corporation) (“TA
Petroleum” or the “Company”) for purposes of listing by way of introduction. This Report serves
as an update on the valuation report issued last November 18, 2013 with a valuation date of
September 30, 2013.
This Report is solely for the use of TA Oil to assist it in determining a reasonable value for TA
Petroleum’s shares.
This Report has been prepared in accordance with our engagement letter dated January 30,
2013 and supplemental agreement dated August 8, 2014, and is solely for the purpose stated
herein and should not be relied upon for any other purpose. This Report is strictly confidential
and, save to the extent required by applicable law and/or regulation, must not be released to any
third-party without our expressed written consent, which is at our sole discretion.
Isla Lipana and Co., PwC member firm
29/F Philamlife Tower, 8767 Paseo de Roxas
1226 Makati City, Philippines
T: +63 (2) 845 2728
F: +63 (2) 845 2806
Project Aceite
PwC
To the fullest extent permitted by law, we accept no duty of care to any third-party in connection
with the provisions of this Report and/or any related information or explanation (together, the
“Information”). Accordingly, regardless of the form of action, whether in contract, tort or
otherwise, and to the extent permitted by applicable law, the Firm accepts no liability of any
kind to any third-party and disclaims all responsibility for the consequences of any third-party
acting or refraining to act in reliance on the Information.
Strictly private and confidential
8 August 2014
2
Appendices Glossary
Our Report is not intended to be the basis for investment decisions and any action you take must
ultimately remain a decision for you, taking into account matters outside the scope of our work
of which you are aware of.
The information used by the Firm in preparing this Report have been obtained from a variety of
sources. These include public disclosures , and information obtained, discussed, and agreed
with TA Oil. TA Oil is solely responsible for the data and financial forecasts it provided to us.
Partner
T: +63 (2) 459 2060
F: +63 (2) 845 2806
Internally-prepared financial information provided by the management of TA Oil have been
accepted without further verification as correctly reflecting results of operations and the
financial and business condition of TA Petroleum.While our work has involved an analysis of
financial information and accounting records, our engagement does not include an audit in
accordance with generally accepted auditing standards of TA Petroleum’s existing business
records. Moreover, except where otherwise stated in the Report, we did not subject the financial
information in the Report to checking or verification procedures. Accordingly, we assume no
responsibility and make no representations with respect to the accuracy or completeness of any
information provided by and on behalf of TA Oil and TA Petroleum. Our work cannot be relied
upon to discover errors, irregularities, or illegal acts.
As part of the fair value measurement process, prospective financial information was utilized.
All such prospective financial information were prepared by TA Oil and represented its
management’s best estimates of such future results as of March 31, 2014, the new valuation date
(“Valuation Date”). The following updates were considered:
T: +63 (2) 845 2728
F: +63 (2) 845 2806
Project Aceite
PwC
• On March 1, 2014, there was an additional committed budget amounting to USD0.6m for the
extension phase of SC 6B. This expenditure was considered in the MEE approach.
• On May 5, 2014, Otto withdrew from SC 51. No change was effected in the calculations since,
according to Management, the probabilities assigned for the drilling of the wells already
considered the possibility of withdrawal of the JV partner.
8 August 2014
3
Partner
T: +63 (2) 459 2060
F: +63 (2) 845 2806
Appendices Glossary
• On May 7, 2014, the DOE approved the new work program submitted by Otto for the drilling
of the Hawkeye well in SC 55. As a result of this development, the committed budget in the SC
55 valuation was updated based on the new work program. This updated expenditure was
considered in the MEE approach .
• The cost of equity was adjusted from 14.0% to 13.0%
• The USD/PhP foreign exchange rate increased from 43.54 as of September 30, 2013 to 44.82
as of March 31, 2014.
All other descriptions and comments in this Report relate to September 30, 2013.
Accordingly, TA Oil understands and accepts that the Advisory Group of Isla Lipana and Co., a
member firm of PricewaterhouseCoopers, has not been employed in the capacity of examining
certified public accountants and therefore has not expressed any form of comfort or assurance
on the achievability of forecasts or the reasonableness of underlying assumptions beyond what is
generally accepted under the standards common to the business fair value measurement
profession.
We performed our review with the assumption that all information obtained in the valuation of
TA Petroleum, including representations and warranties by TA Oil’s management and its thirdparty consultants, are true, accurate, and provided in good faith.
Moreover, the scope of our work does not include a compliance review of financial information
to tax laws and Philippine financial reporting standards. Accordingly, this Report may not have
identified all matters that might be of concern to you.
T: +63 (2) 845 2728
F: +63 (2) 845 2806
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Our conclusions are based upon the information available as at the date of the Report.
Economic conditions, market factors, and changes in the performance of the business may
result in our conclusions becoming quickly outdated and may require updating from time to
time or before any major decisions are taken based on the Report.
8 August 2014
4
Appendices Glossary
In any event, if you intend to make any decision based on the Report more than three months
from the date of the Report, you must request our written confirmation as to the currency of our
conclusions.
Partner
T: +63 (2) 459 2060
F: +63 (2) 845 2806
Forecasts relate to future events and are based on assumptions which may not remain valid for
the whole of the relevant period. We express no assurance of any kind on such prospective or
forecast information since there will usually be differences between estimated and actual results,
because events and circumstances frequently do not occur as expected, and those results may be
material. Consequently, these information cannot be relied upon to the same extent as that
derived from audited accounts for completed accounting periods. Accordingly, we express no
opinion as to how closely the actual results achieved will correspond to the forecasts for TA
Petroleum and we take no responsibility of any kind for the achievement of any expected result.
By its very nature, valuation work cannot be regarded as an exact science and the conclusions
arrived at in many cases will of necessity be subjective and dependent on the exercise of
individual judgment. There is, therefore, no indisputable single value, and we normally express
our valuation as falling within expected ranges, which in our opinion is reasonable and
defensible, and others might wish to argue for different values.
If you require any clarification or further information, please contact me at 845-2728 local 2060.
Yours faithfully,
T: +63 (2) 845 2728
F: +63 (2) 845 2806
Engagement Partner
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8 August 2014
5
Contents
Appendices Glossary
At a glance
7
Our analysis and conclusions
9
1
Business overview
10
2
Industry overview
12
3
Valuation risks
18
4
General valuation methodology
19
5
Valuation analysis
20
5.1
SC 55
21
5.2
SC 69
28
5.3
SC 51
31
5.4
SC 6A
35
5.5
SC 6B
38
Appendices
41
1
Sources of information
42
2
Cost of equity
43
Glossary
44
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8 August 2014
6
Appendices Glossary
Our scope and process
Scope of
work
The Service Contracts covered by our valuation are 6A, 6B, 51, 69, and 55.
Sources of
information
The information used by PwC in preparing this Report has been obtained from a variety of sources as indicated within the Report / Appendix
1. While our work has involved analysis of financial information and/or accounting records, it has not included an audit in accordance with
generally accepted auditing standards. Moreover, except where otherwise stated in the Report, we have we not subjected the financial
information in the Report to checking or verification procedures. Accordingly we assume no responsibility and make no representations with
respect to the accuracy or completeness of any information provided to us, except where otherwise stated herein, and no assurance is given.
Basis of
valuation
The basis of our valuation is fair value. We define fair value as the amount that would be negotiated at the Valuation Date, in an open and
unrestricted market, between a knowledgeable, willing, but not anxious buyer, and a knowledgeable, willing, but not anxious seller, acting at
arm’s-length basis.
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8 August 2014
7
At a glance – our conclusions
We have calculated an estimated range of values of the following Service Contracts (“SCs”)
based on TA Petroleum’s interest. SC 55 contributes about 60-73% of the total value of the SCs.
USD in millions
SC 55
SC 69
SC 51
SC 6A
SC 6B
Total value of SCs
MEE
18.5
5.7
2.0
1.6
1.1
28.7
PhP in millions
USD1.00 = PhP44.82
Total value of SCs
Excess cash as of Valuation Date
Total equity value
Price per share (250 million shares)
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Appendices Glossary
MEE
1,288.3
156.6
1,444.9
5.78
JV
Low
High
10.5
5.5
0.6
0.8
0.3
17.7
23.3
6.9
0.6
0.8
0.3
31.9
JV
Low
791.6
156.6
948.2
3.79
High
1,428.4
156.6
1,585.1
6.34
8 August 2014
8
Our analysis
and
conclusions
Project Aceite
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Appendices Glossary
9
1
Business overview
10
2
Industry overview
12
3
Valuation risks
18
4
19
5
Valuation analysis
20
5.1
SC 55
21
5.2
SC 69
28
5.3
SC 51
31
5.4
SC 6A
35
5.5
SC 6B
38
8 August 2014
9
1 Business overview
TA Oil has four SCs under the DOE. These SCs are located in offshore
Palawan, Eastern Visayas, and Northwest Leyte. SC 55 is potentially
as large as the Philippines’ largest gas field, the Malampaya Project.
These SCs are currently in the exploration stage.
Business overview (1/2)
SCs and TA Petroleum's Partners
Partner
SC 6A SC 6B SC 69 SC 51 SC 55
TA Petroleum's Interest
2.334% 14.063% 6.000% 6.667% 6.820%
Pitkin Petroleum Plc
4
Philodrill Corporation
4
4
PetroEnergy Resources Corp.
4
4
Peak Oil and Gas Ltd.
4
Blade Petroleum Phils. Ltd.
4
Venturoil Philippines, Inc.
4
Nido Petroleum, Inc.
4
4
4
4
Alcorn Gold Resources Corp.
4
4
4
Frontier Gasfields Pty. Ltd.
4
BHP Billiton
4
Anglo Phil Holdings Corp.
4
Forum Energy Phils.
4
4
Philex Petroleum Corp.
4
Phoenix Gas & Oil Exploration Co., Inc.
4
Oriental Petroleum & Minerals Corp.
4
Service Contract 6 (“SC 6”)
SC 6 is located in Offshore Northwest Palawan. It comprises of Block A
with 108,000 hectares, an oil and gas contract; and Block B with
53,300 hectares, an oil contract. Both Blocks A and B have a work
program involving geological and geophysical studies. Block A’s
program also includes a new 3D seismic acquisition that is scheduled in
2013.
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Appendices Glossary
SC 69 covers an area located in the Camotes Sea, Eastern Visayas. The
interpretation of the 229 sq km 3D seismic data in 2012 confirmed the
presence of two sizeable reef structures: Lampos and Lampos South;
and a third smaller prospect, Managau East. The combined resource
estimates for Lampos and Lampos South range between 52MMbbls and
1,169MMbbls with a mean in place volume of 503MMbbls. The
completion of the seismic interpretation work and pre-drill studies
were extended to November 7, 2013.
SC 51 covers an area located in the Cebu Strait and Northwest Leyte. In
early 2011, the joint operating agreement was amended to
accommodate the entry of Swan Oil and Gas Ltd. (“Swan”), and to split
SC 51 into the Northern and Southern Blocks, after Otto Energy
Investments Ltd. (“Otto”) elected not to participate in the Southern
Block. In 2012, Swan failed to perform its obligation and was forced to
give up its interest in SC 51.
The remaining local partners of the Southern Block executed a farm-in
option agreement with Frontier Oil Corporation, giving the latter an
option to acquire an 80% interest, in exchange for drilling the offshore
Argao-1 exploratory well. Frontier did not exercise the option.
In 2012, Otto acquired 100km of new high-quality 2D seismic data over
the San Isidro anticline in the Northern Block. The results of the new
seismic data confirmed a large target. The mean resource of Duhat-2 is
estimated to be 23MMbbls, with an upside potential of 59MMbbls.
8 August 2014
10
1 Business overview
Appendices Glossary
On July 25, 2013, Otto decided to plug and abandon Duhat-2 well for
safety and environmental reasons.
According to TA Oil’s disclosure to the PSE, all critical permits have
been obtained with the exception of the SEP Clearance by the Provincial
Council for Sustainable Development which was submitted in August
2012. The Sangguniang Panlalawigan has requested the submission by
BHPB, as the Operator, of a comprehensive socio-economic
development program for Palawan prior to recommending the
endorsement of the SEP Clearance by the PCSD, which is not a
requirement under Philippine Law, nor has it been required for
exploration approvals in the past.
SC 55 covers 900,000 hectares located in 0ffshore West Palawan. It is a
deepwater block in the middle of a proven regional oil and gas fairway
that extents from the productive Borneo offshore region in the
southwest, to the offshore Philippine production assets northwest of
Palawan.
BHP Billiton (“BHPB”) is the current operator of SC 55. In early 2012,
BHPB requested an extension of sub-phase 4 in order to secure an
appropriate ultra deepwater rig. In May 2012, the Department of
Energy (“DOE”) approved an extension of 12 months. The revised work
schedule is shown below:
As of October 2013, Management disclosed that BHPB has already
received the SEP Clearance for Cinco-1, signed by Governor
Alvarez of Palawan.
The DOE is looking at SC 55 as the potential next big gas field after the
Malampaya project. It has many prospects, including Cinco and
Hawkeye.
Sub-phase
Date
Work program
4
August 2011 – August 2013
1 deepwater well
In Cinco alone, the total unrisked potential mean recoverable resource
estimates are as follows:
5
1 deepwater well
•
Gas: 2.1 Tcf
•
Condensate: 74 MMbbls
On May 6, 2013, TA Oil disclosed that BHPB formally filed a notice of
force majeure in order to preserve the term of the current exploration
sub-phase that involved the drilling of one exploratory well. The
declaration of force majeure comes amid delays in receiving the
Strategic Environmental Plan Clearance (“SEP Clearance”) for SC 55
from the Palawan Provincial Council for Sustainable Development.
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TA Oil’s stake in SC 55 is held through Palawan55 Exploration &
Production Corp. (“P55”). TA Petroleum owns 69.351% of P55, while
the remaining 30.649% is owned by TA Oil.
8 August 2014
11
2 Industry overview
Asia will remain a net oil and gas importer through 2021. However,
rising production and gains in efficiency will slow down growth in
imports.
Industry overview (1/6)
Global increase in demand for power
in millions of b/d
Oil - Production vs Consumption – Asia-Pacific
There has been growing demand for power globally due to expanding
economies, growing urbanization, and efforts to address
underemployment in rural areas, mainly in developing countries,
particularly in Asia.
40
35
30
25
20
15
10
5
-
Asia-Pacific: forecasts and growing countries
2009
2011e
2013f
Production
2015f
2017f
2019f
2021f
Consumption
China is the largest oil and gas producer and consumer in Asia,
consuming 49.6% and producing 35.9% of the continent’s total oil and
gas in 2011. Its oil production is forecast to grow, from 2013 to 2021, at
a compound annual growth rate (CAGR) of 0.2%, second only to
Malaysia’s 2%. It is also expected to be a larger consumer than the US
by 2030. By the end of 2021, China and Malaysia’s forecast oil
production will comprise 52.9% and 9.6% of Asia’s total, respectively.
On gas production, Papua New Guinea and Australia’s CAGR are
estimated to be 70.1% and 9.3% from 2013-2021, respectively. By the
end of 2021, they are expected to have a share of 21.0% and 2.9% of
Asia-Pacific’s total gas production.
Gas - Production vs Consumption – Asia-Pacific
1,200
In billions of m3
Appendices Glossary
1,000
800
600
400
200
2009
2011e
2013f
Production
2015f
2017f
2019f
2021f
Consumption
Source: BMI, PwC Analysis
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8 August 2014
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2 Industry overview
The Philippines’ oil production growth is forecast to slow down from
2013 to 2021, while its gas production growth is forecast to be at par
with Asia’s growth from 2013 to 2021.
The Philippines’ oil production
Oil - Production Growth - Ph vs Asia
The Philippines’ share in Asia’s total oil production was 0.3% in 2011.
By the end of 2021, it is forecast to be 0.4%. The Philippines’ oil
production CAGR is forecast to be 1.4%, higher than that of Asia’s
which shows a -0.2% growth.
50%
40%
30%
20%
The Philippines’ proven oil reserves of 138.5M barrels in 2011, as
reported by the US Energy Information Administration (EIA), is likely
to remain fairly steady over the next five years as increased offshore
exploration and appraisal offsets losses from maturing fields.
10%
0%
-10%
-20%
2010
2012f
2014f
2016f
Oil prod growth - Ph
2018f
2020f
Oil prod growth - Asia
The Department of Energy (DOE) and Philippine National Oil
Company (PNOC) are looking to raise domestic production of oil.
Philippine oil production is due to rise further once the Galoc Phase II
enters operation.
The Philippines’s gas production
Gas - Production Growth - Ph vs Asia
The Philippines contributed 0.9% of Asia’s total gas production in 2011.
This was still small as compared to countries like China (23.8%),
Indonesia (17.5%), Malaysia (14.4%), and Australia (12.3%). Unlike oil
production, its gas production forecasts show a positive outlook. With a
5.2% CAGR from 2011 to 2021, the Philippines’ share in Asia’s total gas
production in2021 will be maintained at 0.9% by 2021.
50%
40%
30%
20%
10%
0%
-10%
-20%
2010
Appendices Glossary
2012f
2014f
Gas prod growth - Ph
2016f
2018f
2020f
The Philippines is largely self-sufficient in terms of natural gas output.
Its gas supply comes from the Malampaya Gas Project, which is
operated by Chevron, Royal Dutch Shell, and PNOC.
Gas prod growth - Asia
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2 Industry overview
Appendices Glossary
The Philippines relies heavily on alternative sources, thus having a
low reliance on oil as fuel for electricity production.
Electricity Source - Philippines (2010)
Oil - Average Consumption - Asia
b/d per 1000 people
45.5
44.0
Australia
China + Taiwan
29%
Indonesia
Philippines
34%
Gas
35.9
35.0
20.0
19.0
2.3
2.0
Oil consumption
6.4
5.0
3.4
3.0
174.6
45.7
45.0
South Korea
Vietnam
Coal
Other renewable
5.6
5.0
Singapore
Thailand
Hydro
Geothermal
15%
Malaysia
P.N. Guinea
12%
2.7
3.0
Japan
Pakistan
Oil based
55.9
42.0
Hong Kong
India
10%
8.2
7.6
14.8
15.0
202.0
In Asia, the Philippines is one of the minimal users of oil, with 3.0
barrels per day per 1000 people consumption. The heaviest user of oil is
Singapore with 202 barrels per day per 1000 people consumption.
Australia, Hong Kong, and South Korea follow with 44, 42, and 45
barrels per day per 1000 people consumption, respectively.
Consumption rates use 2012 data.
The low consumption of the Philippines can be traced to the reliance on
geothermal, hydroelectric, and gas-sourced energy.
4.2
4.0
2011
2012
Source: BMI, World Bank, IndexMundi, PwC Analysis
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8 August 2014
14
2 Industry overview
Financial Highlights (2011)
PhP in billions
GR
27.4
A SPEX
10.2
B PNOC-EC
Profit
13.6
3.0
Assets
24.2
12.9
5.6
29.0
5.0
2.6
5.2
13.4
2.3
1.1
43.4
43.9
2.6
3.0
Major players in the oil and gas industry in the Philippines
A. Shell Pilipinas Exploration BV
(“SPEX”)
Source: Public Information
SPEX is one of the entities within the Royal
Dutch Shell Group plc, the ultimate parent
company. Its was established to explore and
develop gaseous hydrocarbons in the
Philippines. SPEX currently operates SC 38. It
used to operate SC 60, but gave it up on
November 2012.
D. Chevron Malampaya LLC
(“CMLLC”)
E. Galoc Production Company
(“Galoc”)
CMLLC is an exploration company
incorporated in Delaware, USA. It is one of
Chervron’s two upstream business units in the
Philippines.
Galoc is a branch of Galoc Production
Company (GPC), a limited liability company
incorporated in Bahrain. The home office,
through the branch, is tasked to develop the
Galoc Field and Galoc Sub Block. In 2011, Otto
Energy (“Otto”) acquired 100% of Galoc
Production Company SA (the home office’s
parent) allowing Otto to gain full effective
ownership of Galoc.
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C PNOC
D CMLLC
E Galoc
F Nido
Appendices Glossary
B & C. PNOC Exploration Corp. (PNOCEC) and Philippine National Oil
Company (“PNOC”)
Established in 1973, PNOC, which is run by the
government of the Philippines, is responsible
for ensuring adequate national energy
provision and has control over the country’s
upstream segment. Through the PNOC-EC, its
exploration arm, it has a 10% interest in the
Malampaya Project.
F. Nido Production (Galoc) Pty. Ltd.
(“Nido”)
Nido operates as an oil production company.
The company provides seismic data on
petroleum blocks and provides drilling
services. The company was incorporated in
1985 and is based in Makati, Philippines. Nido
operates as a subsidiary of Nido Petroleum
Ltd.
8 August 2014
15
2 Industry overview
Appendices Glossary
Recent developments in the Philippine oil and gas industry
Service contracts as of 2012
As of 2012, there were 27 active service contracts for oil in the
Philippines. Production is done by local players such as PNOC and
several large international operators. These international operators
include ExxonMobil, Shell Pilipinas Exploration, Nido Petroleum, BHP
Billiton (BHP) and Galoc Production Company.
List of Service Contracts for Oil
Exploration and developments
SC 6B The Philodrill Corp.
SC 54B Nido Petroleum Phil. Pty Ltd.
BHP Billiton Petroleum (Phils.)
SC 55 Corp.
Forum Energy Philippines accumulated a total of 564.93 sq km of 3D
data over Recto (Reed) Bank in the 800,000-ha SC72 block located in
the West Philippine Sea. SC72, based on the gathered data, may yield
around 2M cubic feet per day and reserves could be as high as 44M
barrels of oil equivalent and 96B cubic meters of gas. This makes it
around two to three times larger than Malampaya.
SC 14
Philodrill, Galoc, RMA
SC 56
Mitra Energy (Phils.) Ltd.
SC 37
PNOC-EC
SC 57
PNOC-EC
Otto Energy, then NorAsian Energy, has completed 228.8 km2 worth of
3D data within its 528,000-ha SC69 block in the Camotes Sea.
According to the DOE, geophysical surveys encompassing the country’s
16 sedimentary basins were completed. NorAsian Energy also drilled
two onshore exploratory wells in northwest Leyte and northwest
Palawan.
SC 6
Blade Petroleum
SC 6A Pitkin Petroleum Ltd.
SC 38 Shell Philippines Exploration
SC 54A Nido Petroleum Phil. Pty Ltd.
SC 40 Forum Exploration
SC 58 Nido Petroleum Phil. Pty Ltd.
SC 59 Corp.
SC 44 Gas 2 Grid
SC 62
Palawan Sulu Sea Gas inc.
SC 47
PNOC-EC
SC 63 PNOC-EC
China International Mining Petroleum
SC 49 Co. Ltd
SC 64 Ranhill Energy Sdn. Bhd.
High hopes for the Iligan blocks
SC 51
SC 69 Otto Energy Phils., Inc.
Polyard Petroleum
SC 70 International
There are high hopes for SC 59 and SC 62, located northeast of Borneo,
since these blocks share the same geological composition as the rich
offshore hydrocarbons deposits currently being exploited in Sabah,
Malaysia.
SC 51
SC 72
SC 53
Nido Petroleum also drilled the Gindara-1 exploratory well in SC54B.
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SC 50 Frigstad Energy Ltd
Forum (GSEC 101) Ltd
Source: DOE
8 August 2014
16
2 Industry overview
Appendices Glossary
The prices of oil and gas are forecast to go down
Forecast Crude Oil and Gas Prices
Crude Oil Prices - Average - Spot
Forecast prices of crude oil, stated in real 2005 USD prices, are
estimated to grow at a CAGR of -1.9% from 2013 to 2020. On the other
hand, nominal prices are forecast to grow -0.1%. These prices represent
the average forecast spot price of the Brent, Dubai, and West Texas
Intermediate, equally weighed. The decrease in price may be due to the
increasing reliance on renewable energy.
Forecast Japanese and Europe gas prices have a downward trend, with
the US being the exception. Real CAGRs are -2.7%, 6.3%, and -4.0% for
the European, US, and Japanese markets, respectively. Meanwhile,
nominal CAGRs are -0.9%, 8.0%, and -2.1%.
110
100
90
80
70
60
2010
2011
2012
2013
2014
Actual
2016
2017
2018
2019
2020
2018
2019
2020
Forecast
Real USD 2005
Gas Prices (Nominal)
Gas Prices (Real USD 2005 Prices)
20
15
15
2015
Nominal
10
10
5
5
-
2010
2011
2012
2013
2014
2015
Actual
Natural gas, Eur (USD/mmbtu)
2016
2017
2018
2019
2020
2010
2011
2012
2013
2014
2015
Actual
Forecast
Natural gas, US (USD/mmbtu)
2016
2017
Forecast
LNG, Japanese (USD/mmbtu)
Source: World Bank
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8 August 2014
17
3 Valuation risks
Appendices Glossary
Valuation risks
The estimated range of values are based on forecasts and key
assumptions. Changes to these factors and business conditions may
materially and adversely impact the valuation. These factors are as
follows:
Resource and probability estimates
The resource and probability estimates are reliant on the technical
report of the Client’s technical valuation consultant, Add IPS Pty. Ltd
(“Add Energy”).
For the material subsequent events, the probability estimates are based
on Management's best estimates given the current circumstances.
These circumstances might change and the effect on the values may be
significant.
Environmental regulations
The valuation assumed that the Company’s operations are compliant to
health, safety, and environmental laws and regulations
Prospective enhancement multiplier (“PEM”)
The valuation assumed that the applied PEM reflects the prospectivity
of the current area where the SCs are located.
The resulting values under the MEE is are highly sensitive to changes in
the PEM.
Cost estimates
The valuation assumed that the cost estimates provided by
Management or its joint venture partners represent their best estimates
as of the Valuation Date.
Government permits
The valuation assumed that the service contracts will obtain all the
necessary operating permits.
Government policies, and legal and regulatory constraints
The valuation assumed that changes in government policies, rules,
regulatory environment, and laws will have no material effect on the
Company’s operations.
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8 August 2014
18
4 General valuation methodology
Appendices Glossary
Multiples of exploration expenditures method (“MEE”)
•
This approach uses as basis the historical cost of exploration, plus
warranted future exploration expenditures already committed to
the project.
•
The total exploration cost is then multiplied to a PEM, which is
determined based on the prospectivity of the area where the SC is
located.
Joint venture method (“JV”)
•
The JV method uses as basis the amount paid or amount to be spent
by a joint venture partner on exploration to earn a given percentage
of interest in the project.
In arriving at our range of estimated values, we considered the results
of each of the above approaches that we have regarded as appropriate.
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8 August 2014
19
5 Valuation analysis
Valuation
analysis
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Appendices Glossary
5
Valuation analysis
20
5.1
SC 55
21
5.2
SC 69
28
5.3
SC 51
31
5.4
SC 6A
35
5.5
SC 6B
38
8 August 2014
20
5.1 SC 55
Appendices Glossary
Based on the assumptions used in valuing SC 55 and the option related
cash flows, the calculated ranges of estimated values using the MEE
and JV methods as of the Valuation Date are presented in the graph
below
Service Contract 55
SC 55 value based on TA Petroleum's interest plus option cash flows (USD in millions)
Low
0.4
Joint Venture Terms
10.1
High
Multiple of Exploration
Expenditure
17.5
-
5
1.0
10
SC 55
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PwC
1.6
21.7
15
20
25
Option cash flows
8 August 2014
21
5.1 SC 55
Appendices Glossary
The MEE approach
•
Primary inputs and key assumptions
•
The following costs were used to estimate the value of SC 55:
USD M
Historical costs
BHPB
Otto Energy
Committed future costs
1st well firm budget
Total costs (USD in millions)
Probability
Risked Amount
28.2
7.3
100%
100%
28.2
7.3
48.8
100%
48.8
84.3
Sources: BHP Billiton Proposed Work Program and Budget (October 12, 2011); BHP Billiton
OCM (October 15, 2012); Otto Energy AFE Summary (December 2011); Add Energy report
•
BHPB’s costs until October 12, 2011 amounted to USD25 M. Its
major expenditure was a 2,000 km2 3D seismic acquisition.
•
BHPB’s 2012 expenditures were assumed to be equal to the 2013
proposed budget for general and administrative costs and overhead
costs, since no major work program was conducted in 2012.
•
Otto Energy’s historical costs from inception to December 2011
were based on its Authorization For Expenditure summary. Its
major costs include 2D and 3D seismic acquisitions and
interpretations.
•
On May 7, 2014, the DOE approved the new work program
submitted by Otto for the drilling of the Hawkeye well in SC 55.
The total committed cost amounted to USD48.8 M.
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The identification of a defined drill target in Hawkeye suggests that
the PEM should be 2.0.
Estimated value
Based on the assumptions used, the calculated estimated value using
the MEE approach is presented in the table below:
Total costs
84.3
PEM
SC 55 value
2.0
168.6
*USD in millions
The amount attributable to TA Petroleum (USD in millions) is:
SC 55 Valuation (@100%)
Participating interest of P55 *
Participating interest of TA Petroleum in P55
Net to TA Petroleum
168.6
15%
69.351%
17.5
*Effective interest as of first well.
8 August 2014
22
5.1 SC 55
Appendices Glossary
The JV approach
Background
•
In May 2011, Otto Energy announced that BHPB has exercised the
option to farm-in to SC 55. Under the terms of the agreement, BHBP
will earn a 60% interest through the funding of the two deepwater
exploration wells and the reimbursement of Otto Energy’s past costs.
The following costs and probabilities under the two scenarios, based
on the terms of the farm-in agreement, were used to estimate the
value of SC 55:
•
As agreed with Management, the same budget assigned for the 1st
exploration well was assumed for the 2nd.
•
The contingent budgets were allocated in case of a discovery or
success. The probabilities assigned to the contingent budgets were
based on Add Energy’s estimated GPoS for Cinco and Hawkeye of
25% and 27%, respectively.
•
The reimbursement of past costs was incurred prior to the
execution of the farm-in agreement. Hence, there was no free-carry
assumed for this.
•
In the first week of November 2013, BHPB verbally informed the
partners that it has decided not to participate in the drilling of the
Cinco-1 well. In March 2014, DOE approved the transfer of the 60%
participating interest of BHPB to Otto as a result of the termination
of the farm-out agreement between the two parties. This updated
valuation report still used the farm-in arrangements entered into
between BHPB and Otto in 2011.
•
As a result, for the low case, Management assumed a 30%
probability of drilling the 1st deepwater well. This probability was
multiplied to the cost of drilling the 1st deepwater well.
•
BHPB’s proposed budget for the 1st exploration well includes a
contingent budget of USD27.7 M. The contingent budget was
allocated in case of a discovery or success. The probability assigned
to the contingent budget was based on Add Energy’s estimated
Geological Probability of Success (“GPoS”) for Cinco of 25%.
Should BHPB elect to drill only the first deepwater exploration well, it
will transfer back the 30% interest and operatorship of SC 55 to Otto.
•
We assumed two possible scenarios using the JV approach. The
first scenario assumed that only one exploration well will be drilled.
On the other hand, the second scenario assumed that two
exploration wells will be.
•
The valuation followed Add Energy’s assumption that Cinco will be
the first prospect to be drilled and, in the success case, it will be
followed by Hawkeye.
Scenario
1 well
2 wells
•
Well location
Cinco
Cinco & Hawkeye
Participating interest
BHPB
P55
30%
60%
15%
6.82%
BHPB incurred a significant delay in undertaking the drilling of the
Cinco-1 due to the non-availability of a suitable ultra-deepwater rig,
and the refusal of the Palawan Council for Sustainable Development
(“PCSA”) to issue a Strategic Environmental Plan clearance in the
third quarter of 2013. As a consequence, BHPB filed a Force
Majeure notice with the DOE. PCSD released the clearance in
October 2013.
Project Aceite
PwC
8 August 2014
23
5.1 SC 55
Appendices Glossary
The JV approach (cont’d)
1 well
Reimbursement of past costs
Total Otto Energy costs
BHPB's past costs
1st deepwater well (firm budget)
1st deepwater well (contingent budget)
Total BHPB costs
2 wells
BHPB's past costs
2nd deepwater well (firm budget)
2nd deepwater well (contingent budget)
Total BHPB costs
Project Aceite
PwC
USD M
Probability Risked amount
7.3
100%
7.3
7.3
28.2
64.7
27.7
100%
30%
8%
For the high case, Management assumed a 100% probability of
drilling the 1st deepwater well .
28.2
19.4
2.1
49.7
USD M
7.3
100%
7.3
7.3
28.2
64.7
27.7
64.7
27.7
100%
100%
100%
100%
27%
28.2
64.7
27.7
64.7
7.5
192.7
1 well
BHPB's past costs
Total BHPB costs
2 wells
BHPB's past costs
Total BHPB costs
USD M
7.3
100%
7.3
7.3
28.2
64.7
27.7
100%
100%
25%
28.2
64.7
6.9
99.8
USD M
7.3
100%
7.3
7.3
28.2
64.7
27.7
64.7
27.7
100%
100%
100%
100%
27%
28.2
64.7
27.7
64.7
7.5
192.7
8 August 2014
24
5.1 SC 55
Appendices Glossary
Estimated range of values
Based on the assumptions used, the calculated values under the two
scenarios are presented in the table below:
Based on the assumptions used, the calculated weighted values using
the JV approach are presented in the tables below:
For the low case:
Scenario
Net acquisition cost
acquired
1 well
2 wells
30%
60%
42.1
84.4
SC 55 value
acquired
1 well
30%
77.2
2 wells
60%
84.4
SC 55 value
257.2
140.7
*USD in millions
•
We have computed for weighted values with varying probabilities to
find SC 55’s value which is attributable to TA Petroleum.
•
Based on Add Energy’s estimated GPoS for Cinco, we have assumed
75-25 chances that only one well and two wells will be drilled,
respectively.
Project Aceite
PwC
For the low case
140.2
140.7
*USD in millions
For the high case:
Scenario
According to Management, it is difficult to secure a specialized rig as
these are normally contracted on a long-term basis. Hence, for the low
case, an 80% probability of securing a suitable rig was assumed.
Particulars
Weights
Weighted value
Probability of securing a suitable rig
Participating interest of P 55
Participating interest of TA Petroleum in P 55
Net to TA Petroleum
1 well
140.2
75.0%
105.2
80%
15%
69.351%
8.8
Weighted value
(USD M)
2 wells
140.7
25.0%
35.2
80%
6.82%
69.351%
1.3
10.1
For the high case
Particulars
Weights
Weighted value
Net to TA Petroleum
1 well
257.2
75.0%
192.9
100%
15%
69.351%
20.1
Weighted value
(USD M)
2 wells
140.7
25.0%
35.2
100%
6.82%
69.351%
1.7
21.7
8 August 2014
25
5.1 SC 55
Appendices Glossary
Option cash flows
•
For the high case:
The following probabilities were used:
USD M
Data
Probability
Fund 1 deepwater well
Cinco GPoS
Low
30.0%
25.0%
7.5%
High
100.0%
25.0%
25.0%
Payable within 10 days of the
commencement date of actual
drilling operations "spud-in date"
on the first well
The unrisked and risked values of the potential payments from Frontier
Gasfields Ltd (“Frontier”) to P55 are shown in the table below:
For the low case:
USD M
on the first well
Frontier Shares to be paid within
10 days of spud-in date of the
first well
Cash paid if option is exercised
Total (USD in millions)
Probability
Risked
Amount
PV PV of Cash
Factor
flows
0.3
30.0%
0.1
0.94
0.1
0.6
30.0%
0.2
0.94
0.2
3.5
3.5
7.5%
7.5%
0.3
0.3
0.86
0.83
0.2
0.2
0.7
first well
•
Probability
Risked
Amount
PV PV of Cash
Factor
flows
0.3
100.0%
0.3 0.94
0.2
0.6
100.0%
0.6 0.94
0.5
3.5
3.5
25.0%
25.0%
0.9 0.86
0.9 0.83
0.8
0.7
2.3
The present value (“PV”) factor was based on the following:
-
A cost of equity of 13.0%. We have approximated the relevant
discount rate by using inputs from the selected comparable
company and available market data. The comparable companies
that were used in our analysis were Oriental Petroleum and
Minerals Corp., PetroEnergy Resources Corp., South China
Resources, Inc., The Philodrill Corporation, and Philex
Petroleum Corp.
-
The timing of cash flows were based on the schedule of subphase 4, and the terms of the option agreement. Due to the
force majeure, Management assumed a 14-month delay in the
schedule.
Sources: Add Energy report, SC 55 option agreement
Project Aceite
PwC
8 August 2014
26
5.1 SC 55
Appendices Glossary
Option cash flows
Estimated value
For the mid-case
For the low case:
Options cash flows
Net to TA Petroleum - high case
USD M
0.7
69.351%
0.5
Low
High
Mid-case
Value
0.4
1.6
Weight
50.0%
50.0%
Weighted
value
0.2
0.8
1.0
For the low case, an 80% probability of securing a suitable rig was
assumed. The resulting value is as follows:
Probability of securing suitable rig
Net to TA Petroleum - low case
For the high case:
Options cash flows
Net to TA Petroleum
Project Aceite
PwC
0.5
80.0%
0.4
USD M
2.3
69.351%
1.6
1.6
100%
1.6
8 August 2014
27
5.2 SC 69
Appendices Glossary
Based on the assumptions used in valuing SC 69, the calculated range
of estimated values using the MEE and JV methods as of the Valuation
Date is presented in the graph below:
Service Contract 69
SC 69 value based on TA Petroleum's interest (USD in millions)
5.5
Joint Venture Terms
Low
6.9
Expenditure
High
5.7
-
1
2
3
Multiple of Exploration Expenditure
Project Aceite
PwC
4
Joint Venture Terms High
5
6
7
8
Joint Venture Terms Low
8 August 2014
28
5.2 SC 69
Appendices Glossary
The MEE approach
Estimated value
•
the multiple of exploration expenditure approach is presented in the
table below:
USD M
Historical Costs
Sub-Phase 1 - 3,000 km 2D seismic
Sub-Phase 2 - 900 km 2D seismic
Sub-Phase 3 - 229 sq km 3D seismic
Commited future costs
Total Costs
0.7
3.0
3.8
7.6
Total costs
7.6
1.5
11.3
The historical costs were based on Otto’s Authorization For
Expenditure (“AFE”) summary as of December 31, 2012.
•
Sub-phase 1 included the cost of geological and geophysical review
and reprocessing of 3,000 km 2D seismic data.
•
In sub-phase 2, the consortium completed and interpreted the
results of the 900 km of 2D seismic data.
•
The work program for sub-phase 3 involved a 229 sq km 3D seismic
survey. The completion of seismic interpretation in the current subphase is still on-going. Therefore, no budget has been committed
for the next sub-phase.
•
SC 69 has a defined drill target, the Lampos and Lampos South.
However, on October 10, 2013, Otto filed a request with the DOE
for the assignment of the 9% interest to TA Petroleum.
Project Aceite
PwC
SC 69 value
*USD in millions
Sources: Otto Energy AFE Summary (December 2012); Add Energy report
•
PEM
Participating interest of TA Petroleum
Net to TA Petroleum
11.3
50.0%
5.7
The valuation assumed that the participating interest of TA Petroleum
will increase from 6% to 15% (pending approval by the DOE) as a result
of the withdrawal of Otto. According to management, the final
ownership of TA Petroleum is 50% (which includes the remaining half
of Otto’s 70% interest), although request for approval will still follow.
8 August 2014
29
5.2 SC 69
Appendices Glossary
The JV approach
•
Background
On February 3, 2011, TA Oil assigned its 9% participating interest to
Otto Energy in exchange for the following considerations:
•
Reimbursement of certain past costs,
• Shouldering half of TA Oil’s 6% share of expenditures in sub-phase
3, and
•
Free carry TA Oil’s 6% share on the drilling of the first well.
On October 7, 2013, TA Petroleum and Frontier Gasfields Pty. Ltd.
jointly requested the Department of Energy for a six-month
extension of the October 7, 2013 deadline to elect to enter the next
exploration sub-phase.
The valuation assumed that the farm-in agreement used in the JV
approach was executed in an arm’s-length basis. Accordingly, the
consortium can attract investors on the same terms and conditions as
the farm-in agreement used.
Estimated value
the JV approach is presented in the table below:
•
The following costs based on the terms of the farm-in agreement,
were used to estimate the value of SC 69:
USD M
Historical costs
Reimbursements of past costs
Phase 3 - 3D seismic (50%)
Future costs
Phase 4 - 1 well (estimated)
Total
Obligation Probability Payment
Net acquisition
cost
9.00%
SC 69
value
1.2
13.8
*USD in millions
3.5
1.9
9%
6%
100%
100%
0.3
0.1
30.0
6%
30%
0.8
1.2
Net to TA Petroleum
•
Management estimated the cost of drilling an offshore well to be
from USD40-50 M, while the probability of drilling it is 30.0%.
•
On October 4, 2013, Otto notified partners of its withdrawal from
SC 69, the current sub-phase of which expires on November 7,
2013.
Project Aceite
PwC
acquired
13.8
50.0%
6.9
Given the uncertainty in securing a six-month extension from the
DOE, an 80% probability was assumed for the low case. The resulting
valuation is as follows:
Probability of securing an extension
6.9
80.0%
5.5
8 August 2014
30
5.3 SC 51
Appendices Glossary
Service Contract 51
SC 51 value based on TA Petroleum's interest
0.6
Value
2.0
0.0
0.5
1.0
1.5
2.0
2.5
USD in millions
Joint Venture Terms
Project Aceite
PwC
8 August 2014
31
5.3 SC 51
Appendices Glossary
The MEE approach
•
•
USD M
Historical Costs
Cost as of December 2012
Sub-Phase 5 - Duhat-2 well
Contingent cost - well testing
Probability Payment
19.6
100%
19.6
-
100%
25%
19.6
Estimated value
Total cost
Source: Otto Energy AFE Summary (December 2012)
•
•
PEM
19.6
Otto Energy’s spent a total of USD19.2 M as of December 31, 2012,
primarily for the drilling of Duhat-1 well, 2D and 3D seismic survey.
Otto’s 2012 general and administrative expense were assumed to be
equal to 2012 budget.
•
On July 25, 2013, Otto decided to plug and abandon the Duhat-2
well for safety and environmental reasons.
•
In its October 2013 meeting, the consortium voted to request the
DOE a 6-month extension of the current Sub-Phase 5 from 31 Jan
2014 to 31 July 2014.
Project Aceite
PwC
SC 51 identified San Isidro and Argao as the primary drill targets.
The results of seismic data acquisition and interpretation,
identification of the drill target, and result of current drillings
suggests a PEM of 1.5
SC 51 value
1.5
29.4
*USD in millions
Net to TA Petroleum
29.4
6.67%
2.0
8 August 2014
32
5.3 SC 51
Appendices Glossary
The JV approach
Background
Under the amended farm-in option agreement entered in January 2011,
Swan and Otto are collectively liable for the drilling of two onshore
wells in the Northern Block to earn a 40% interest each in SC 51 North,
while Swan is obligated to drill one offshore well in the Southern Block
to earn 80% in SC 51 South.
•
The following costs, based on the terms of the farm-in agreement,
North Block
Historical costs
Pre-survey planning
2D seismic
Duhat-1 drilling
G&A for 2012 (estimated)
Future costs
2nd onshore well Duhat-2 (budget)
Total
USD M
Historical costs
Site survey
Pre-drill engineering
G&A for 2012
Argao-1 (estimated)
Total
0.1
5.5
4.2
0.3
20.0%
20.0%
20.0%
20.0%
100.0%
100.0%
100.0%
100.0%
0.0
1.1
0.8
0.1
8.2
18.3
20.0%
50.0%
0.8
2.8
The cost of pre-survey planning, 2D seismic, and drilling of the
Duhat-1 well were shouldered by both Swan and Otto.
•
Management estimated that the probability of successfully drilling
the second well is 50%.
USD M
Free Carry Probability Payment
2.0
0.8
0.3
20.0%
20.0%
20.0%
100.0%
100.0%
100.0%
0.4
0.2
0.1
42.9
46.0
20.0%
40.0%
3.4
4.1
•
The cost of the site survey and pre-drill engineering were
shouldered by Swan.
•
Swan estimated the cost of drilling an off-shore well to be
USD42.9M.
•
Management estimated that the probability of drilling the Argao-1
well is 40%.
•
The general and administrative costs for 2012 were assumed to be
equal to the 2012 budget.
•
The historical costs as of December 31, 2012 were based on the AFE
summary for SC 51.
•
On May 5, 2014, Otto withdrew from SC 51. No change was effected
in the calculations as, according to Management, the probabilities
assigned for the drilling of the wells already considered the
possibility of withdrawal of the JV partner.
•
Project Aceite
PwC
South Block
8 August 2014
33
5.3 SC 51
Appendices Glossary
The JV approach
Estimated value
Block
acquired
SC 51 value
North
80%
2.8
3.6
South
80%
4.1
5.1
Total
8.6
*USD in millions
SC 51 (@100%)
Net to TA Petroleum
Project Aceite
PwC
8.6
6.67%
0.6
8 August 2014
34
5.4 SC 6A
Appendices Glossary
Based on the assumptions used in valuing SC 6A, the calculated range
Service Contract 6A
SC 6A value based on TA Petroleum's interest
0.8
1.6
-
0.2
0.4
0.6
0.8
1.0
USD in millions
Joint Venture Terms
Project Aceite
PwC
1.2
1.4
1.6
1.8
8 August 2014
35
5.4 SC 6A
Appendices Glossary
The MEE approach
Estimated value
•
table below:
The following costs were used to estimate the value of SC 6A:
Historical expenditures pre Pitkin farm in
Reimbursement of historical expenditures post Pitkin farm in
Committed phase 1 500 sq km 3D seismic
USD M
40.0
0.2
4.5
44.6
Sources: Pitkin Petroleum PLC 2013 proposed work program and budget, SC 6A
Farm-in agreement, Management estimate
•
Management estimated historical expenditures pre-Pitkin
Petroleum Plc’s (“Pitkin”) farm-in to be USD40M.
•
Pitkin’s proposed 2013 budget included the following: 1) 3D seismic
program, 2) office costs, 3) manpower allocations, and 4) training /
development / scholarship funds.
•
The presence of an interesting target and a committed work
program to 3D seismic data acquisition and interpretation suggests
that the PEM should be 1.5.
Project Aceite
PwC
Total costs
44.6
PEM
SC 6A value
1.5
66.9
*USD in millions
SC 6A Valuation (@100%)
Net to TA Petroleum
66.9
2.334%
1.6
8 August 2014
36
5.4 SC 6A
Appendices Glossary
The JV approach
•
Background
In July 2011, The Philodrill Corp., PetroEnergy Resources Corp., Anglo
Philippine Holdings Corp., Trans-Asia Oil & Energy Development
Corp., Forum Energy Philippines Corp., and Philex Petroleum Corp.,
collectively the “Farmors,” agreed to transfer and assign to Pitkin a 70%
participating interest in SC 6A through the funding of the a 3D seismic
program and two exploration wells. If Pitkin does not elect to drill any
well or only elects to drill one, Pitkin shall cede and reassign its
participating interest at no cost to the Farmors.
Estimated value
acquired
Additionally, Pitkin will reimburse each Farmor for documented
expenditures previously incurred in relation to SC 6A, in an amount up
to but not exceeding USD150,000.
•
70%
Phase 1 - 500 sq km 3D seismic
Phase 2 - 1 well
Phase 3 - 1 well
Total
25.5
SC 6A value
36.4
*USD in millions
The following costs based on the terms of the farm-in agreement
were used to estimate the value of SC 6A:
Reimbursement of expenditures
Total
Management estimated the cost of the first well to be from USD3040 M and the 2nd well to be from USD40-50 M.
USD M
0.2
0.2
Net to TA Petroleum
36.4
2.334%
0.8
4.5
35.0
45.0
84.5
Sources: SC 6A Farm-in agreement, Pitkin Petroleum PLC
2013 proposed work program and budget, Management
estimates
Project Aceite
PwC
8 August 2014
37
5.5 SC 6B
Appendices Glossary
Based on the assumptions used in valuing SC 6B, the calculated range
Service Contract 6B
SC 6B value based on TA Petroleum's interest
0.3
1.1
0.0
0.2
0.4
0.6
0.8
1.0
1.2
USD in millions
Joint Venture Terms
Project Aceite
PwC
8 August 2014
38
5.5 SC 6B
Appendices Glossary
The MEE approach
Estimated value
•
table below:
The following costs were used to estimate the value of SC 6B:
Historical Costs
Total Costs
USD M
6.7
0.8
7.5
Total costs
PEM
7.5
7.5
*USD in millions
Source: Department of Energy validated cost recoverable letter (August 13, 2012); Add Energy
report
•
1.0
SC 6B value
The total cost of USD669k represents Department of Energy (DOE)
- validated recoverable costs as of December 31, 2009. TA
Petroleum had a 10% interest in SC 6B prior to 2000, when
substantially all the above costs were incurred.
•
Major expenses were primarily related to the drilling of the Bonita
well.
•
In December 2012, the consortium failed to bag DOE’s approval to
revive the Bonita field.
•
On August 2, 2013, the same decision was reaffirmed by the DOE
due to the failure of one of the farminees to demonstrate technical
and financial capacity. However, the presence of a drillable target
and history of oil production suggest a PEM of 1.0.
•
On March 1, 2014, there was an additional committed budget
amounting to USD0.6m for the extension phase of SC 6B. This
expenditure was considered in the MEE approach.
Project Aceite
PwC
Net to TA Petroleum
7.5
14.06%
1.1
remains at 14.06% even after the failure of the farminees to
demonstrate their financial capacity as service contractor to the DOE
and subsequent DOE disapproval of the proposed farm-in.
8 August 2014
39
5.5 SC 6B
Appendices Glossary
The JV approach
•
Background
In December 2011, Peak Oil and Gas Philippines Limited (Australia),
Blade Petroleum Philippines Limited (Australia), and VenturOil
Philippines, Inc. acquired a 64.53% participating interest in exchange
for carrying the farm-out parties in all future work programs and
budgets until first oil production. In the above farm-in agreement, Nido
Petroleum retained its 7.812% interest and did not participate in
assigning 70% of its working interest to the farminees.
•
were used to estimate the value of SC 6B:
USD M
Future costs
G&G Studies
Drill Exploration Well
Complete Well and Tie-back to
Cadlao
Total purchase price
27.7%
27.7%
100.0%
25.0%
0.1
0.9
10.0
22.7
27.7%
12.5%
0.3
1.3
Estimated value
the joint venture approach is presented in the table below:
Participating
interest acquired
64.53%
1.3
SC 6B value
2.0
*USD in millions
•
The above work programs represent forecast activities to
successfully tie-back the SC 6B to the Cadlao field.
•
Based on the terms of the contract, only the remaining interests of
the farmors of 27.66% were considered in determining the purchase
price. Nido Petroleum will shoulder its own cost in the above work
programs.
Project Aceite
PwC
Our valuation assumed that the farm-in agreement used in the JV
0.2
12.5
Management estimated that the probability of drilling an
exploration well is 25%, while the completion of the tie-back to
Cadlao is 12.5%.
SC 6B Valuation (@100%)
Net to TA Petroleum
2.0
14.06%
0.3
8 August 2014
40
Appendices
Project Aceite
PwC
Appendices Glossary
Appendices
41
1
42
2
Cost of equity
43
8 August 2014
41
1 Sources of information
Appendices Glossary
In the course of our valuation analyses, we relied upon interviews with
the Client, financial and other information obtained from Management,
and from various public and industry sources. Our conclusion is
dependent on such information being complete and accurate in all
material respects.
The principal sources of information used in performing our valuation
include:
•
Historical, committed, and future costs regarding the SCs provided
by the Client;
•
Service contracts and farm -in agreements provided by the Client;
•
Discussions with the Client;
•
Capital IQ’s on-line database covering financial markets,
commodities, local stock prices, and news;
•
Publicly available resources, such as publications, etc.;
•
Disclosures in the Philippine Stock Exchange (“PSE”) website;
•
Company websites; and
•
Technical valuation reports provided by the Client’s technical
valuation team, Add IPS Pty. Ltd.
Project Aceite
PwC
8 August 2014
42
2 Cost of equity
Appendices Glossary
Cost of equity
•
Cost of Equity – The cost of equity capital is estimated using the
Capital Asset Pricing Model (CAPM), which assumes the cost of
equity is equal to the return on risk-free securities plus the ERP
adjusted for the company’s systematic risk (Beta). The general
formula for the cost of equity is:
-
Ke = Rf + Beta * (Rm – Rf)
◦
Rf = Risk-free rate of return
◦
Beta = Systematic risk for the company’s equity
◦
Rm – Rf = ERP = The equity market’s return premium over
the risk free return
Project Aceite
PwC
8 August 2014
43
Appendices Glossary
Glossary
Term
Definition
Add Energy
Add IPS Pty. Ltd
AFE
Authorization For Expenditure
BHPB
BHP Billiton
CAGR
Compound Annual Growth Rate
Capital IQ
S&P Capital IQ
CAPM
Capital Asset Pricing Model
Client / TA Oil
Company / TA Petroleum
Trans-Asia Petroleum Corporation
CMLLC
Chevron Malampaya LLC
DOE
Department of Energy
EIA
Energy Information Administration
ERP
Equity Risk Premium
Frontier
Frontier Gasfields Ltd.
FY
Financial Year Beginning 1 January and Ending 31 December
GAAP
Generally Accepted Accounting Principles
GPoS
Geological Probability of Success
Kd
Cost of Debt
Ke
Cost of Equity
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PwC
8 August 2014
44
Appendices Glossary
Glossary
Term
Definition
LTM
Last Twelve Months
Management
The management of TA Oil
MEE Method
Multiple of Exploration Expenditure Method
MMbbls
Million Barrels
JV Method
Km
Kilometer
PCSA
Palawan Council for Sustainable Development
PE
Price to Earnings Ratio
PEM
Prospective Enhancement Multiplier
P55
Palawan55 Exploration & Production Corporation
PhP
Philippine Peso
Pitkin
PNOC
Philippine National Oil Corporation
PSE
Philippine Stocks Exchange
PV
Present Value
PwC
PricewaterhouseCoopers LLP
Rf
Risk-free Rate
RoW
Rest of the World
SC
Service Contract
Project Aceite
PwC
8 August 2014
45
Appendices Glossary
Glossary
Term
Definition
SEC
Securities and Exchange Commission
SEP Clearance
Strategic Environmental Plan Clearance
SIC
Standard Industrial Classification
SPEX
Shell Pilipinas Exploration BV
SSP
Small Stock Premium
Swan
Swan Oil and Gas Ltd.
TA Oil
TA Petroleum
Tcf
Trillion Cubic Feet
USD
US Dollars
Valuation Date
March 31, 2014
Project Aceite
PwC
8 August 2014
46
The Board of Directors
Makati City, 1200
August 8, 2014
Attention: Mr. Pythagoras L. Brion, Jr.
Gentlemen:
This updated fairness opinion ("Updated Opinion") has been prepared by ("PwC" or "Isla Lipana
& Co."), a member firm of PricewaterhouseCoopers, to comply with the PSE Memorandum No.
2011-0104 requiring that the date of the fairness opinion and valuation report must not be more
than three months before the transaction date. This Updated Opinion considered the subsequent
events from the date of our original valuation report (November 18, 2013) to the date of this
Updated Opinion. Based on our calculation and after considering the subsequent events, we reconfirm, that the price of Php4.60 is fair to TA Oil as this still falls within our estimated range of
values.
Very truly yours,
Managing Partner
Isla Lipana & Co., 29th Floor, Philamlife Tower, 8767 Paseo de Roxas, 1226 Makati City, Philippines
T: +63 (2) 845 2728, F: +63 (2) 845 2806, www.pwc.com/ph
Updated Fairness
Opinion to TransAsia Oil and
Energy
Development
Corporation
The Board of Directors
Makati City, 1200
August 8, 2014
Attention: Mr. Pythagoras L. Brion, Jr.
Gentlemen:
You have requested our updated opinion (“Opinion”), as to the fairness from a financial point of
view, to the stockholders of Trans-Asia Oil and Energy Development Corporation (“TA Oil”) of
the price per share of Trans-Asia Petroleum Corporation (“TA Petroleum”) for purposes of listing
by way of introduction (the “Transaction”).
This Opinion will serve as an update on the fairness opinion we issued on November 18, 2013.
The new valuation date is March 31, 2014.
In connection with our Opinion, we have:
i.
Considered that all the tasks performed for the completion of our original report dated
November 18, 2013 remain relevant except on the subsequent events specifically stated
herein;
ii.
Considered certain financial and other information relating to TA Petroleum that were
publicly available or has been furnished to us, including historical costs and budget
estimates;
iii.
Discussed with members of TA Oil’s and TA Petroleum’s management to understand TA
Petroleum’s business, operations, historical financial results, future prospects, and budget
estimates;
iv.
Considered the financial consideration of certain publicly-listed companies in businesses
similar to those of TA Petroleum;
v.
Performed research to better understand the oil and gas industry;
vi.
Performed multiple of exploration expenditure and joint venture method valuation; and
Isla Lipana & Co., 29th Floor, Philamlife Tower, 8767 Paseo de Roxas, 1226 Makati City, Philippines
T: +63 (2) 845 2728, F: +63 (2) 845 2806, www.pwc.com/ph
vii.
Considered such other information, analyses and investigations and financial, economic
and market data as we deemed relevant and appropriate for purposes of this opinion.
The opinion expressed below is subject to the following qualifications and limitations:
i.
Based on the new valuation date of March 31, 2014, we relied on Management’s estimate
on the impact of the following subsequent events after our main report last November 18,
2013:
 On March 1, 2014, there was an additional committed budget amounting to USD0.6m
for the extension phase of SC 6B. This expenditure was considered in the MEE
approach.


ii.
On May 5, 2014, Otto withdrew from SC 51. This development has no significant
impact on SC 51 since the main valuation report already considered this possibility.
On May 7, 2014, the DOE approved the new work program submitted by Otto for the
drilling of the Hawkeye well in SC 55. As a result of this development, the committed
budget in the SC 55 valuation was updated based on the new work program. This
updated expenditure was considered in the MEE approach.
In arriving at our Opinion, we assumed that all other assumptions used in our original
valuation report remain the same or have no material impact on the updated range of
values, other than those specifically stated herein.
The following qualifications and limitations cited in our original fairness opinion remains the same:
iii.
In arriving at our Opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all financial and other information that
were publicly available or furnished to us by TA Oil and TA Petroleum. With respect to the
historical costs and budget estimates used by us, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates and
judgments of TA Oil and TA Petroleum’s management, their technical valuation team, and
their joint venture partners, as to TA Petroleum’s future work programs.
iv.
Our work with respect to any prospective financial information does not constitute an
examination, compilation, or agreed-upon procedures engagement of historical costs and
budget estimates. We express no assurance of any kind on such information since there
will usually be differences between estimated and actual results, because events and
circumstances frequently do not occur as expected, and those differences may be material.
v.
We have not made an independent evaluation or appraisal of the assets of TA Petroleum.
We have not been requested to, and did not, solicit third-party indications of interest in
acquiring all or any part of TA Petroleum.
3 of 7 pages
vi.
Our services with respect to the Transaction do not constitute, nor should they be
construed to constitute in any way, a review or audit of or any other procedures with
respect to any financial information, nor should such services be relied upon by any
person to disclose weaknesses in internal controls or financial statement errors or
irregularities.
vii.
Our Opinion does not address, and should not be construed to address, either the
underlying business decision to effect the Transaction or whether the price per share used
in the Transaction represents the best price.
viii.
We express no view as to the national or local tax consequences of the Transaction.
ix.
Our estimates of share value reflect the fair values as of the valuation date, including the
following service contracts (SCs) of TA Petroleum:
1.
2.
3.
4.
5.
SC 6 Block A
SC 6 Block B
SC 51
SC 55 (through Palawan55 Exploration and Production Corporation)
SC69
x.
We have relied on the technical reports of TA Petroleum’s technical valuation team, Add
IPS Pty. Ltd, for the geological probabilities of success. If these assumptions and estimates
prove to be incorrect, the results of our valuation could be materially and adversely
affected. We take no responsibility for any report coming from TA Oil, TA Petroleum, and
Add IPS Pty, Ltd.
xi.
Management assumed that a prospective enhancement multiplier (PEM) of 2.0 is
appropriate for SC 55, 1.5 for SCs 6A, 51, and 69, and 1.0 for SC 6B. The above
assessments were based on the current prospectivity of the area where the SCs are located.
xii.
TA Petroleum’s operations are subject to health, safety, and environmental laws and
regulations enforced by the Philippine Government. Failure by TA Petroleum to comply
with the applicable laws and regulations may give rise to significant liabilities, and could
materially and adversely affect the results of our valuation.
xiii.
The Philippine Government exercises significant influence over the oil and gas industry.
Changes in government policies, rules, regulatory environment, and laws may have a
material effect on TA Petroleum’s results of operations, and consequently its valuation.
xiv.
Our valuation assumed that the farm-in agreements were executed in an arm’s-length
manner. Accordingly, the consortium in all SCs can attract investors on the same terms
and conditions as the most recent farm-in agreements.
xv.
The commencement of the drilling and other work programs in SCs 6A and 6B are
dependent on the issuance of the Palawan local government of the necessary permits.
4 of 7 pages
xvi.
Our Opinion is based on business, economic, market and other conditions as they exist as
of the date hereof or as of the date of the information provided to us. We have not
considered events subsequent to the date of our Opinion.
xvii.
We have relied on Management’s probability estimates on the impact of the following
subsequent events from the valuation date (September 30, 2013) to the date of our
valuation report (November 18, 2013) for SCs 55 and 69 to estimate values for the low
case scenario.



xviii.
In November 2013, BHP Billiton verbally informed the partners that it has decided not
to participate in the drilling of the Cinco-1 well. As a result, Management estimated
that the probability of drilling the first well will only be 30%. Furthermore, they
assumed that there is only 80% probability that the partners will be able to secure a
specialized rig required for this well.
On October 4, 2013, Otto notified its partners of its withdrawal from SC 69.
Consequently, Management estimated that the probability of drilling the offshore well
will only be 30%.
On October 7, 2013, TA Petroleum and Frontier Gasfields Pty. Ltd. jointly requested
the Department of Energy (“DOE”) for a six-month extension of the deadline to enter
the next sub-phase of SC 69. As a result, Management assumed that there is an 80%
probability that the remaining partners will be able to secure extension from the DOE.
Our Opinion should not be construed as providing TA Oil, TA Petroleum, or any third
party with an investment advice. Neither are we expressing an opinion on the continued
viability of TA Petroleum.
xix.
We have not considered the impact of any force majeure events after the date of the
accompanying valuation report which may delay or cause the joint venture partners to
abandon any or all of the SCs.
xx.
This Opinion is effective as of the date hereof. We have no obligation to update the
Opinion unless requested by you in writing to do so and expressly disclaim any
responsibility to do so in the absence of any such request.
5 of 7 pages
The results of our updated valuation show the following range of values:
As of March 31, 2014
USD in millions
SC 55
SC 69
SC 51
SC 6A
SC 6B
Total value of SCs
PhP in millions
USD1.00 = PhP44.82
Total value of SCs
Total equity value
MEE
18.5
5.7
2.0
1.6
1.1
28.7
MEE
1,288.3
156.6
1,444.9
5.78
JV
Low
10.5
5.5
0.6
0.8
0.3
17.7
High
23.3
6.9
0.6
0.8
0.3
31.9
JV
Low
791.6
156.6
948.2
3.79
High
1,428.4
156.6
1,585.1
6.34
Based upon and subject to the foregoing, it is our opinion that as of the valuation date and after
considering the subsequent events enumerated above, the Php4.60 per share to be used as the
listing price for the Transaction is fair to TA Oil from a financial point of view.
Isla Lipana & Co. has been accredited by the Philippine Stock Exchange (“PSE”) to issue fairness
opinions and valuation reports in accordance with the rules of the PSE.
Neither Isla Lipana & Co. nor the individuals involved with this analysis have any present nor
contemplated future interest in TA Oil and TA Petroleum or any other interest that might tend to
prevent making a fair and unbiased valuation. In our letter dated February 22, 2013, we have
requested the PSE to consider Isla Lipana & Co. as independent in connection with the
Transaction. On February 28, 2013, we received confirmation from PSE of our independence.
We will receive a fee as compensation for our services in rendering this Opinion. No portion of
our fees or expense reimbursements is refundable or contingent upon the consummation of the
Transaction or the tenor of the conclusions reached in this Opinion.
6 of 7 pages
This letter is for the information of the Board of Directors of TA Oil in connection with the
Transaction described herein. We understand that this Opinion will be submitted to the PSE and
the Securities and Exchange Commission.
Very truly yours,
Managing Partner
7 of 7 pages
Deals
Project Aceite
Valuation Report in Support of the
Fairness Opinion on Trans-Asia
Petroleum Corp0ration’s Value as
of September 30, 2013
Strictly private
and confidential
18 November 2013
Appendices Glossary
Makati City, 1200
18 November 2013
Dear Mr. Brion,
Partner
T: +63 (2) 459 2060
F: +63 (2) 845 2806
This report (the “Report”) has been prepared by Isla Lipana & Co. (“we,” “PwC Philippines,” or
the “Firm”), a member firm of PricewaterhouseCoopers, solely for Trans-Asia Oil and Energy
Development Corporation (“You,” “TA Oil,” “Management,” or the “Client”) in connection with
the issuance of a fairness opinion, from a financial point of view, of the price per share of TransAsia Petroleum Corporation (formerly Trans-Asia (Karang Besar) Petroleum Corporation) (“TA
Petroleum” or the “Company”) for purposes of listing by way of introduction.
This Report is solely for the use of TA Oil to assist it in determining a reasonable value for TA
Petroleum’s shares.
This Report has been prepared in accordance with our engagement letter dated January 30,
2013, and is solely for the purpose stated herein and should not be relied upon for any other
purpose. This Report is strictly confidential and, save to the extent required by applicable law
and/or regulation, must not be released to any third-party without our expressed written
consent, which is at our sole discretion.
To the fullest extent permitted by law, we accept no duty of care to any third-party in connection
with the provisions of this Report and/or any related information or explanation (together, the
“Information”). Accordingly, regardless of the form of action, whether in contract, tort or
otherwise, and to the extent permitted by applicable law, the Firm accepts no liability of any
kind to any third-party and disclaims all responsibility for the consequences of any third-party
acting or refraining to act in reliance on the Information.
T: +63 (2) 845 2728
F: +63 (2) 845 2806
Project Aceite
PwC
18 November 2013
2
Appendices Glossary
Our Report is not intended to be the basis for investment decisions and any action you take must
ultimately remain a decision for you, taking into account matters outside the scope of our work
of which you are aware of.
The information used by the Firm in preparing this Report have been obtained from a variety of
sources. These include public disclosures , and information obtained, discussed, and agreed
with TA Oil. TA Oil is solely responsible for the data and financial forecasts it provided to us.
Partner
T: +63 (2) 459 2060
F: +63 (2) 845 2806
Internally-prepared financial information provided by the management of TA Oil have been
accepted without further verification as correctly reflecting results of operations and the
financial and business condition of TA Petroleum.While our work has involved an analysis of
financial information and accounting records, our engagement does not include an audit in
accordance with generally accepted auditing standards of TA Petroleum’s existing business
records. Moreover, except where otherwise stated in the Report, we did not subject the financial
information in the Report to checking or verification procedures. Accordingly, we assume no
responsibility and make no representations with respect to the accuracy or completeness of any
information provided by and on behalf of TA Oil and TA Petroleum. Our work cannot be relied
upon to discover errors, irregularities, or illegal acts.
As part of the fair value measurement process, prospective financial information was utilized.
All such prospective financial information were prepared by TA Oil and represented its
management’s best estimates of such future results as of September 30, 2013, the valuation date
(“Valuation Date”). Unless otherwise noted, all descriptions and comments in this Report relate
to this measurement date.
T: +63 (2) 845 2728
F: +63 (2) 845 2806
Project Aceite
PwC
Accordingly, TA Oil understands and accepts that the Advisory Group of Isla Lipana and Co., a
member firm of PricewaterhouseCoopers, has not been employed in the capacity of examining
certified public accountants and therefore has not expressed any form of comfort or assurance
on the achievability of forecasts or the reasonableness of underlying assumptions beyond what is
generally accepted under the standards common to the business fair value measurement
profession.
18 November 2013
3
Appendices Glossary
We performed our review with the assumption that all information obtained in the valuation of
TA Petroleum, including representations and warranties by TA Oil’s management and its thirdparty consultants, are true, accurate, and provided in good faith.
Moreover, the scope of our work does not include a compliance review of financial information
to tax laws and Philippine financial reporting standards. Accordingly, this Report may not have
identified all matters that might be of concern to you.
Partner
T: +63 (2) 459 2060
F: +63 (2) 845 2806
Our conclusions are based upon the information available as at the date of the Report.
Economic conditions, market factors, and changes in the performance of the business may
result in our conclusions becoming quickly outdated and may require updating from time to
time or before any major decisions are taken based on the Report.
In any event, if you intend to make any decision based on the Report more than three months
from the date of the Report, you must request our written confirmation as to the currency of our
conclusions.
Forecasts relate to future events and are based on assumptions which may not remain valid for
the whole of the relevant period. We express no assurance of any kind on such prospective or
forecast information since there will usually be differences between estimated and actual results,
because events and circumstances frequently do not occur as expected, and those results may be
material. Consequently, these information cannot be relied upon to the same extent as that
derived from audited accounts for completed accounting periods. Accordingly, we express no
opinion as to how closely the actual results achieved will correspond to the forecasts for TA
Petroleum and we take no responsibility of any kind for the achievement of any expected result.
T: +63 (2) 845 2728
F: +63 (2) 845 2806
Project Aceite
PwC
By its very nature, valuation work cannot be regarded as an exact science and the conclusions
arrived at in many cases will of necessity be subjective and dependent on the exercise of
individual judgment. There is, therefore, no indisputable single value, and we normally express
our valuation as falling within expected ranges, which in our opinion is reasonable and
defensible, and others might wish to argue for different values.
18 November 2013
4
Appendices Glossary
If you require any clarification or further information, please contact me at 845-2728 local 2060,
or in my absence Noel R.Custodio at local 3064.
Yours faithfully,
Partner
T: +63 (2) 459 2060
F: +63 (2) 845 2806
Engagement Partner
T: +63 (2) 845 2728
F: +63 (2) 845 2806
Project Aceite
PwC
18 November 2013
5
Contents
Appendices Glossary
At a glance
7
9
1
Business overview
10
2
Industry overview
12
3
Valuation risks
18
4
19
5
Valuation analysis
20
5.1
SC 55
21
5.2
SC 69
28
5.3
SC 51
31
5.4
SC 6A
35
5.5
SC 6B
38
Appendices
41
1
42
2
Cost of equity
43
Glossary
44
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Project Aceite
PwC
18 November 2013
6
Appendices Glossary
Our scope and process
Scope of
work
The Service Contracts covered by our valuation are 6A, 6B, 51, 69, and 55.
Sources of
information
The information used by PwC in preparing this Report has been obtained from a variety of sources as indicated within the Report / Appendix
1. While our work has involved analysis of financial information and/or accounting records, it has not included an audit in accordance with
generally accepted auditing standards. Moreover, except where otherwise stated in the Report, we have we not subjected the financial
information in the Report to checking or verification procedures. Accordingly we assume no responsibility and make no representations with
respect to the accuracy or completeness of any information provided to us, except where otherwise stated herein, and no assurance is given.
Basis of
valuation
The basis of our valuation is fair value. We define fair value as the amount that would be negotiated at the Valuation Date, in an open and
unrestricted market, between a knowledgeable, willing, but not anxious buyer, and a knowledgeable, willing, but not anxious seller, acting at
arm’s-length basis.
Project Aceite
PwC
18 November 2013
7
At a glance – our conclusions
We have calculated an estimated range of values of the following Service Contracts (“SCs”)
based on TA Petroleum’s interest. SC 55 contributes about 60-73% of the total value of the SCs.
USD in millions
SC 55
SC 69
SC 51
SC 6A
SC 6B
Total value of SCs
MEE
23.2
5.7
2.0
1.6
1.0
33.3
PhP in millions
USD1.00 = PhP43.54
Total value of SCs
Total equity value
Project Aceite
PwC
Appendices Glossary
MEE
1,451.5
168.6
1,620.1
6.48
JV
Low
High
10.4
5.5
0.6
0.8
0.3
17.6
23.2
6.9
0.6
0.8
0.3
31.8
JV
Low
767.8
168.6
936.4
3.75
High
1,382.7
168.6
1,551.3
6.21
18 November 2013
8
Our analysis
and
conclusions
Project Aceite
PwC
Appendices Glossary
9
1
Business overview
10
2
Industry overview
12
3
Valuation risks
18
4
19
5
Valuation analysis
20
5.1
SC 55
21
5.2
SC 69
28
5.3
SC 51
31
5.4
SC 6A
35
5.5
SC 6B
38
18 November 2013
9
1 Business overview
SCs and TA Petroleum's Partners
Partner
SC 6A SC 6B SC 69 SC 51 SC 55
TA Petroleum's Interest
2.334% 14.063% 6.000% 6.667% 6.820%
4
Philodrill Corporation
4
4
PetroEnergy Resources Corp.
4
4
Peak Oil and Gas Ltd.
4
Blade Petroleum Phils. Ltd.
4
Venturoil Philippines, Inc.
4
Nido Petroleum, Inc.
4
4
4
4
Alcorn Gold Resources Corp.
4
4
4
Frontier Gasfields Pty. Ltd.
4
BHP Billiton
4
Anglo Phil Holdings Corp.
4
Forum Energy Phils.
4
4
Philex Petroleum Corp.
4
Phoenix Gas & Oil Exploration Co., Inc.
4
Oriental Petroleum & Minerals Corp.
4
SC 6 is located in Offshore Northwest Palawan. It comprises of Block A
with 108,000 hectares, an oil and gas contract; and Block B with
53,300 hectares, an oil contract. Both Blocks A and B have a work
program involving geological and geophysical studies. Block A’s
program also includes a new 3D seismic acquisition that is scheduled in
2013.
Project Aceite
PwC
Appendices Glossary
SC 69 covers an area located in the Camotes Sea, Eastern Visayas. The
interpretation of the 229 sq km 3D seismic data in 2012 confirmed the
presence of two sizeable reef structures: Lampos and Lampos South;
and a third smaller prospect, Managau East. The combined resource
estimates for Lampos and Lampos South range between 52MMbbls and
1,169MMbbls with a mean in place volume of 503MMbbls. The
completion of the seismic interpretation work and pre-drill studies
were extended to November 7, 2013.
SC 51 covers an area located in the Cebu Strait and Northwest Leyte. In
early 2011, the joint operating agreement was amended to
accommodate the entry of Swan Oil and Gas Ltd. (“Swan”), and to split
SC 51 into the Northern and Southern Blocks, after Otto Energy
Investments Ltd. (“Otto”) elected not to participate in the Southern
Block. In 2012, Swan failed to perform its obligation and was forced to
give up its interest in SC 51.
The remaining local partners of the Southern Block executed a farm-in
option agreement with Frontier Oil Corporation, giving the latter an
option to acquire an 80% interest, in exchange for drilling the offshore
Argao-1 exploratory well. Frontier did not exercise the option.
In 2012, Otto acquired 100km of new high-quality 2D seismic data over
the San Isidro anticline in the Northern Block. The results of the new
seismic data confirmed a large target. The mean resource of Duhat-2 is
estimated to be 23MMbbls, with an upside potential of 59MMbbls.
18 November 2013
10
1 Business overview
Appendices Glossary
On July 25, 2013, Otto decided to plug and abandon Duhat-2 well for
safety and environmental reasons.
According to TA Oil’s disclosure to the PSE, all critical permits have
been obtained with the exception of the SEP Clearance by the Provincial
Council for Sustainable Development which was submitted in August
2012. The Sangguniang Panlalawigan has requested the submission by
BHPB, as the Operator, of a comprehensive socio-economic
development program for Palawan prior to recommending the
endorsement of the SEP Clearance by the PCSD, which is not a
requirement under Philippine Law, nor has it been required for
exploration approvals in the past.
SC 55 covers 900,000 hectares located in 0ffshore West Palawan. It is a
deepwater block in the middle of a proven regional oil and gas fairway
that extents from the productive Borneo offshore region in the
southwest, to the offshore Philippine production assets northwest of
Palawan.
BHP Billiton (“BHPB”) is the current operator of SC 55. In early 2012,
BHPB requested an extension of sub-phase 4 in order to secure an
appropriate ultra deepwater rig. In May 2012, the Department of
Energy (“DOE”) approved an extension of 12 months. The revised work
schedule is shown below:
As of October 2013, Management disclosed that BHPB has already
received the SEP Clearance for Cinco-1, signed by Governor
Alvarez of Palawan.
The DOE is looking at SC 55 as the potential next big gas field after the
Malampaya project. It has many prospects, including Cinco and
Hawkeye.
Sub-phase
Date
Work program
4
1 deepwater well
In Cinco alone, the total unrisked potential mean recoverable resource
estimates are as follows:
5
1 deepwater well
•
Gas: 2.1 Tcf
•
Condensate: 74 MMbbls
On May 6, 2013, TA Oil disclosed that BHPB formally filed a notice of
force majeure in order to preserve the term of the current exploration
sub-phase that involved the drilling of one exploratory well. The
declaration of force majeure comes amid delays in receiving the
Strategic Environmental Plan Clearance (“SEP Clearance”) for SC 55
from the Palawan Provincial Council for Sustainable Development.
Project Aceite
PwC
TA Oil’s stake in SC 55 is held through Palawan55 Exploration &
Production Corp. (“P55”). TA Petroleum owns 69.351% of P55, while
the remaining 30.649% is owned by TA Oil.
18 November 2013
11
2 Industry overview
Asia will remain a net oil and gas importer through 2021. However,
rising production and gains in efficiency will slow down growth in
imports.
Global increase in demand for power
in millions of b/d
Oil - Production vs Consumption – Asia-Pacific
There has been growing demand for power globally due to expanding
economies, growing urbanization, and efforts to address
underemployment in rural areas, mainly in developing countries,
particularly in Asia.
40
35
30
25
20
15
10
5
-
Asia-Pacific: forecasts and growing countries
2009
2011e
2013f
Production
2015f
2017f
2019f
2021f
Consumption
China is the largest oil and gas producer and consumer in Asia,
consuming 49.6% and producing 35.9% of the continent’s total oil and
gas in 2011. Its oil production is forecast to grow, from 2013 to 2021, at
a compound annual growth rate (CAGR) of 0.2%, second only to
Malaysia’s 2%. It is also expected to be a larger consumer than the US
by 2030. By the end of 2021, China and Malaysia’s forecast oil
production will comprise 52.9% and 9.6% of Asia’s total, respectively.
On gas production, Papua New Guinea and Australia’s CAGR are
estimated to be 70.1% and 9.3% from 2013-2021, respectively. By the
end of 2021, they are expected to have a share of 21.0% and 2.9% of
Asia-Pacific’s total gas production.
Gas - Production vs Consumption – Asia-Pacific
1,200
In billions of m3
Appendices Glossary
1,000
800
600
400
200
2009
2011e
2013f
Production
2015f
2017f
2019f
2021f
Consumption
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18 November 2013
12
2 Industry overview
The Philippines’ oil production growth is forecast to slow down from
2013 to 2021, while its gas production growth is forecast to be at par
with Asia’s growth from 2013 to 2021.
The Philippines’ oil production
Oil - Production Growth - Ph vs Asia
The Philippines’ share in Asia’s total oil production was 0.3% in 2011.
By the end of 2021, it is forecast to be 0.4%. The Philippines’ oil
production CAGR is forecast to be 1.4%, higher than that of Asia’s
which shows a -0.2% growth.
50%
40%
30%
20%
The Philippines’ proven oil reserves of 138.5M barrels in 2011, as
reported by the US Energy Information Administration (EIA), is likely
to remain fairly steady over the next five years as increased offshore
exploration and appraisal offsets losses from maturing fields.
10%
0%
-10%
-20%
2010
2012f
2014f
2016f
Oil prod growth - Ph
2018f
2020f
Oil prod growth - Asia
The Department of Energy (DOE) and Philippine National Oil
Company (PNOC) are looking to raise domestic production of oil.
Philippine oil production is due to rise further once the Galoc Phase II
enters operation.
The Philippines’s gas production
Gas - Production Growth - Ph vs Asia
The Philippines contributed 0.9% of Asia’s total gas production in 2011.
This was still small as compared to countries like China (23.8%),
Indonesia (17.5%), Malaysia (14.4%), and Australia (12.3%). Unlike oil
production, its gas production forecasts show a positive outlook. With a
5.2% CAGR from 2011 to 2021, the Philippines’ share in Asia’s total gas
production in2021 will be maintained at 0.9% by 2021.
50%
40%
30%
20%
10%
0%
-10%
-20%
2010
Appendices Glossary
2012f
2014f
Gas prod growth - Ph
2016f
2018f
2020f
The Philippines is largely self-sufficient in terms of natural gas output.
Its gas supply comes from the Malampaya Gas Project, which is
operated by Chevron, Royal Dutch Shell, and PNOC.
Gas prod growth - Asia
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18 November 2013
13
2 Industry overview
Appendices Glossary
The Philippines relies heavily on alternative sources, thus having a
low reliance on oil as fuel for electricity production.
Electricity Source - Philippines (2010)
Oil - Average Consumption - Asia
b/d per 1000 people
45.5
44.0
Australia
China + Taiwan
29%
Indonesia
Philippines
34%
Gas
35.9
35.0
20.0
19.0
2.3
2.0
Oil consumption
6.4
5.0
3.4
3.0
174.6
45.7
45.0
South Korea
Vietnam
Coal
Other renewable
5.6
5.0
Singapore
Thailand
Hydro
Geothermal
15%
Malaysia
P.N. Guinea
12%
2.7
3.0
Japan
Pakistan
Oil based
55.9
42.0
Hong Kong
India
10%
8.2
7.6
14.8
15.0
202.0
In Asia, the Philippines is one of the minimal users of oil, with 3.0
barrels per day per 1000 people consumption. The heaviest user of oil is
Singapore with 202 barrels per day per 1000 people consumption.
Australia, Hong Kong, and South Korea follow with 44, 42, and 45
barrels per day per 1000 people consumption, respectively.
Consumption rates use 2012 data.
The low consumption of the Philippines can be traced to the reliance on
geothermal, hydroelectric, and gas-sourced energy.
4.2
4.0
2011
2012
Source: BMI, World Bank, IndexMundi, PwC Analysis
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PwC
18 November 2013
14
2 Industry overview
A
B
C
D
E
F
Financial Highlights (2011)
PhP in billions
GR
SPEX
27.4
PNOC-EC
10.2
Profit
13.6
3.0
Assets
24.2
12.9
5.2
13.4
2.3
1.1
43.4
43.9
2.6
3.0
Major players in the oil and gas industry in the Philippines
A. Shell Pilipinas Exploration BV
(“SPEX”)
Source: Public Information
SPEX is one of the entities within the Royal
Dutch Shell Group plc, the ultimate parent
company. Its was established to explore and
develop gaseous hydrocarbons in the
Philippines. SPEX currently operates SC 38. It
used to operate SC 60, but gave it up on
November 2012.
D. Chevron Malampaya LLC
(“CMLLC”)
E. Galoc Production Company
(“Galoc”)
CMLLC is an exploration company
incorporated in Delaware, USA. It is one of
Chervron’s two upstream business units in the
Philippines.
Galoc is a branch of Galoc Production
Company (GPC), a limited liability company
incorporated in Bahrain. The home office,
through the branch, is tasked to develop the
Galoc Field and Galoc Sub Block. In 2011, Otto
Energy (“Otto”) acquired 100% of Galoc
Production Company SA (the home office’s
parent) allowing Otto to gain full effective
ownership of Galoc.
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PNOC
CMLLC
Galoc
Nido
5.6
29.0
5.0
2.6
Appendices Glossary
B & C. PNOC Exploration Corp. (PNOCEC) and Philippine National Oil
Company (“PNOC”)
Established in 1973, PNOC, which is run by the
government of the Philippines, is responsible
for ensuring adequate national energy
provision and has control over the country’s
upstream segment. Through the PNOC-EC, its
exploration arm, it has a 10% interest in the
Malampaya Project.
F. Nido Production (Galoc) Pty. Ltd.
(“Nido”)
Nido operates as an oil production company.
The company provides seismic data on
petroleum blocks and provides drilling
services. The company was incorporated in
1985 and is based in Makati, Philippines. Nido
operates as a subsidiary of Nido Petroleum
Ltd.
18 November 2013
15
2 Industry overview
Appendices Glossary
Recent developments in the Philippine oil and gas industry
Service contracts as of 2012
As of 2012, there were 27 active service contracts for oil in the
Philippines. Production is done by local players such as PNOC and
several large international operators. These international operators
include ExxonMobil, Shell Pilipinas Exploration, Nido Petroleum, BHP
Billiton (BHP) and Galoc Production Company.
List of Service Contracts for Oil
Exploration and developments
SC 6B The Philodrill Corp.
SC 54B Nido Petroleum Phil. Pty Ltd.
SC 55 Corp.
Forum Energy Philippines accumulated a total of 564.93 sq km of 3D
data over Recto (Reed) Bank in the 800,000-ha SC72 block located in
the West Philippine Sea. SC72, based on the gathered data, may yield
around 2M cubic feet per day and reserves could be as high as 44M
barrels of oil equivalent and 96B cubic meters of gas. This makes it
around two to three times larger than Malampaya.
SC 14
Philodrill, Galoc, RMA
SC 56
Mitra Energy (Phils.) Ltd.
SC 37
PNOC-EC
SC 57
PNOC-EC
Otto Energy, then NorAsian Energy, has completed 228.8 km2 worth of
3D data within its 528,000-ha SC69 block in the Camotes Sea.
According to the DOE, geophysical surveys encompassing the country’s
16 sedimentary basins were completed. NorAsian Energy also drilled
two onshore exploratory wells in northwest Leyte and northwest
Palawan.
SC 6
Blade Petroleum
SC 6A Pitkin Petroleum Ltd.
SC 38 Shell Philippines Exploration
SC 54A Nido Petroleum Phil. Pty Ltd.
SC 40 Forum Exploration
SC 58 Nido Petroleum Phil. Pty Ltd.
SC 59 Corp.
SC 44 Gas 2 Grid
SC 62
Palawan Sulu Sea Gas inc.
SC 47
PNOC-EC
SC 63 PNOC-EC
China International Mining Petroleum
SC 49 Co. Ltd
SC 64 Ranhill Energy Sdn. Bhd.
High hopes for the Iligan blocks
SC 51
SC 69 Otto Energy Phils., Inc.
Polyard Petroleum
SC 70 International
There are high hopes for SC 59 and SC 62, located northeast of Borneo,
since these blocks share the same geological composition as the rich
offshore hydrocarbons deposits currently being exploited in Sabah,
Malaysia.
SC 51
SC 72
SC 53
Nido Petroleum also drilled the Gindara-1 exploratory well in SC54B.
Project Aceite
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SC 50 Frigstad Energy Ltd
Forum (GSEC 101) Ltd
Source: DOE
18 November 2013
16
2 Industry overview
Appendices Glossary
The prices of oil and gas are forecast to go down
Forecast Crude Oil and Gas Prices
Crude Oil Prices - Average - Spot
Forecast prices of crude oil, stated in real 2005 USD prices, are
estimated to grow at a CAGR of -1.9% from 2013 to 2020. On the other
hand, nominal prices are forecast to grow -0.1%. These prices represent
the average forecast spot price of the Brent, Dubai, and West Texas
Intermediate, equally weighed. The decrease in price may be due to the
increasing reliance on renewable energy.
Forecast Japanese and Europe gas prices have a downward trend, with
the US being the exception. Real CAGRs are -2.7%, 6.3%, and -4.0% for
the European, US, and Japanese markets, respectively. Meanwhile,
nominal CAGRs are -0.9%, 8.0%, and -2.1%.
110
100
90
80
70
60
2010
2011
2012
2013
2014
Actual
2016
2017
2018
2019
2020
2018
2019
2020
Forecast
Real USD 2005
Gas Prices (Nominal)
Gas Prices (Real USD 2005 Prices)
20
15
15
2015
Nominal
10
10
5
5
-
2010
2011
2012
2013
2014
2015
Actual
2016
2017
2018
2019
2020
2010
2011
2012
2013
2014
2015
Actual
Forecast
2016
2017
Forecast
Source: World Bank
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18 November 2013
17
3 Valuation risks
Appendices Glossary
Valuation risks
The estimated range of values are based on forecasts and key
assumptions. Changes to these factors and business conditions may
materially and adversely impact the valuation. These factors are as
follows:
Resource and probability estimates
The resource and probability estimates are reliant on the technical
report of the Client’s technical valuation consultant, Add IPS Pty. Ltd
(“Add Energy”).
For the material subsequent events, the probability estimates are based
on Management's best estimates given the current circumstances.
These circumstances might change and the effect on the values may be
significant.
Environmental regulations
The valuation assumed that the Company’s operations are compliant to
health, safety, and environmental laws and regulations
Prospective enhancement multiplier (“PEM”)
The valuation assumed that the applied PEM reflects the prospectivity
of the current area where the SCs are located.
The resulting values under the MEE is are highly sensitive to changes in
the PEM.
Cost estimates
The valuation assumed that the cost estimates provided by
Management or its joint venture partners represent their best estimates
as of the Valuation Date.
Government permits
The valuation assumed that the service contracts will obtain all the
necessary operating permits.
Government policies, and legal and regulatory constraints
The valuation assumed that changes in government policies, rules,
regulatory environment, and laws will have no material effect on the
Company’s operations.
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18 November 2013
18
4 General valuation methodology
Appendices Glossary
Multiples of exploration expenditures method (“MEE”)
•
This approach uses as basis the historical cost of exploration, plus
warranted future exploration expenditures already committed to
the project.
•
The total exploration cost is then multiplied to a PEM, which is
determined based on the prospectivity of the area where the SC is
located.
Joint venture method (“JV”)
•
The JV method uses as basis the amount paid or amount to be spent
by a joint venture partner on exploration to earn a given percentage
of interest in the project.
In arriving at our range of estimated values, we considered the results
of each of the above approaches that we have regarded as appropriate.
Project Aceite
PwC
18 November 2013
19
5 Valuation analysis
Valuation
analysis
Project Aceite
PwC
5
Valuation analysis
20
5.1
SC 55
21
5.2
SC 69
28
5.3
SC 51
31
5.4
SC 6A
35
5.5
SC 6B
38
18 November 2013
20
5.1 SC 55
Based on the assumptions used in valuing SC 55 and the option related
cash flows, the calculated ranges of estimated values using the MEE
and JV methods as of the Valuation Date are presented in the graph
below
Service Contract 55
SC 55 value based on TA Petroleum's interest plus option cash flows (USD in millions)
Low
0.3
Joint Venture Terms
10.1
High
Expenditure
22.3
-
5
10
SC 55
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1.5
21.7
0.9
15
20
25
Option cash flows
18 November 2013
21
5.1 SC 55
The MEE approach
•
•
USD M
Historical costs
BHPB
Otto Energy
Committed future costs
1st well firm budget
1st well contingent budget
Probability
Risked Amount
28.2
7.3
100%
100%
28.2
7.3
64.7
27.7
100%
25%
64.7
6.9
107.1
Sources: BHP Billiton Proposed Work Program and Budget (October 12, 2011); BHP Billiton
OCM (October 15, 2012); Otto Energy AFE Summary (December 2011); Add Energy report
•
BHPB’s costs until October 12, 2011 amounted to USD25 M. Its
major expenditure was a 2,000 km2 3D seismic acquisition.
•
BHPB’s 2012 expenditures were assumed to be equal to the 2013
proposed budget for general and administrative costs and overhead
costs, since no major work program was conducted in 2012.
•
Otto Energy’s historical costs from inception to December 2011
were based on its Authorization For Expenditure summary. Its
major costs include 2D and 3D seismic acquisitions and
interpretations.
•
BHPB’s proposed budget for the 1st exploration well includes a
contingent budget of USD27.7 M. The contingent budget was
allocated in case of a discovery or success. The probability assigned
to the contingent budget was based on Add Energy’s estimated
Geological Probability of Success (“GPoS”) for Cinco of 25%.
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The identification of a defined drill target in Cinco, following 3D
seismic data acquisition and interpretation suggests that the PEM
should be 2.
Estimated value
Total costs
107.1
PEM
SC 55 value
2.0
214.2
*USD in millions
Participating interest of P55 *
Net to TA Petroleum
214.2
15%
69.351%
22.3
*Effective interest as of first well.
18 November 2013
22
5.1 SC 55
The JV approach
Background
•
In May 2011, Otto Energy announced that BHPB has exercised the
option to farm-in to SC 55. Under the terms of the agreement, BHBP
will earn a 60% interest through the funding of the two deepwater
exploration wells and the reimbursement of Otto Energy’s past costs.
The following costs and probabilities under the two scenarios, based
on the terms of the farm-in agreement, were used to estimate the
value of SC 55:
•
As agreed with Management, the same budget assigned for the 1st
exploration well was assumed for the 2nd.
•
The contingent budgets were allocated in case of a discovery or
success. The probabilities assigned to the contingent budgets were
based on Add Energy’s estimated GPoS for Cinco and Hawkeye of
25% and 27%, respectively.
•
The reimbursement of past costs was incurred prior to the
execution of the farm-in agreement. Hence, there was no free-carry
assumed for this.
Should BHPB elect to drill only the first deepwater exploration well, it
will transfer back the 30% interest and operatorship of SC 55 to Otto.
•
We assumed two possible scenarios using the JV approach. The
first scenario assumed that only one exploration well will be drilled.
On the other hand, the second scenario assumed that two
exploration wells will be.
•
The valuation followed Add Energy’s assumption that Cinco will be
the first prospect to be drilled and, in the success case, it will be
followed by Hawkeye.
Scenario
1 well
2 wells
•
Well location
Cinco
Cinco & Hawkeye
BHPB
P55
30%
60%
15%
6.82%
BHPB incurred a significant delay in undertaking the drilling of the
Cinco-1 due to the non-availability of a suitable ultra-deepwater rig,
and the refusal of the Palawan Council for Sustainable Development
(“PCSA”) to issue a Strategic Environmental Plan clearance in the
third quarter of 2013. As a consequence, BHPB filed a Force
Majeure notice with the DOE. PCSD released the clearance in
October 2013.
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18 November 2013
23
5.1 SC 55
In the first week of November 2013, BHPB verbally informed the
partners that it has decided not to participate in the drilling of
the Cinco-1 well.
For the high case, Management assumed a 100% probability of
drilling the 1st deepwater well .
1 well
As a result, for the low case, Management assumed a 30%
probability of drilling the 1st deepwater well. This probability was
multiplied to the cost of drilling the 1st deepwater well.
1 well
BHPB's past costs
Total BHPB costs
2 wells
BHPB's past costs
Total BHPB costs
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PwC
USD M
7.3
100%
7.3
7.3
28.2
64.7
27.7
100%
30%
8%
28.2
19.4
2.1
49.7
USD M
7.3
100%
7.3
7.3
28.2
64.7
27.7
64.7
27.7
100%
100%
100%
100%
27%
28.2
64.7
27.7
64.7
7.5
192.7
BHPB's past costs
Total BHPB costs
2 wells
BHPB's past costs
Total BHPB costs
USD M
7.3
100%
7.3
7.3
28.2
64.7
27.7
100%
100%
25%
28.2
64.7
6.9
99.8
USD M
7.3
100%
7.3
7.3
28.2
64.7
27.7
64.7
27.7
100%
100%
100%
100%
27%
28.2
64.7
27.7
64.7
7.5
192.7
18 November 2013
24
5.1 SC 55
Estimated range of values
Based on the assumptions used, the calculated values under the two
scenarios are presented in the table below:
Based on the assumptions used, the calculated weighted values using
the JV approach are presented in the tables below:
For the low case:
Scenario
acquired
1 well
2 wells
30%
60%
42.1
84.4
SC 55 value
acquired
1 well
30%
77.2
2 wells
60%
84.4
SC 55 value
257.2
140.7
*USD in millions
•
We have computed for weighted values with varying probabilities to
find SC 55’s value which is attributable to TA Petroleum.
•
Based on Add Energy’s estimated GPoS for Cinco, we have assumed
75-25 chances that only one well and two wells will be drilled,
respectively.
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For the low case
140.2
140.7
*USD in millions
For the high case:
Scenario
According to Management, it is difficult to secure a specialized rig as
these are normally contracted on a long-term basis. Hence, for the low
case, an 80% probability of securing a suitable rig was assumed.
Particulars
Weights
Weighted value
Net to TA Petroleum
1 well
140.2
75.0%
105.2
80%
15%
69.351%
8.8
2 wells
140.7
25.0%
35.2
80%
6.82%
69.351%
1.3
Weighted value
(USD M)
10.1
For the high case
Particulars
Weights
Weighted value
Net to TA Petroleum
1 well
257.2
75.0%
192.9
100%
15%
69.351%
20.1
2 wells
140.7
25.0%
35.2
100%
6.82%
69.351%
1.7
Weighted value
(USD M)
21.7
18 November 2013
25
5.1 SC 55
Option cash flows
•
For the high case:
The following probabilities were used:
USD M
Data
Probability
Cinco GPoS
Low
30.0%
25.0%
7.5%
High
100.0%
25.0%
25.0%
on the first well
The unrisked and risked values of the potential payments from Frontier
Gasfields Ltd (“Frontier”) to P55 are shown in the table below:
For the low case:
USD M
on the first well
first well
Probability
Risked
Amount
PV PV of Cash
Factor
flows
0.3
30.0%
0.1 0.88
0.1
0.6
30.0%
0.2 0.88
0.2
3.5
3.5
7.5%
7.5%
0.3 0.79
0.3 0.77
0.2
0.2
first well
•
0.6
Probability
Risked
Amount
PV PV of Cash
Factor
flows
0.3
100.0%
0.3 0.88
0.2
0.6
100.0%
0.6 0.88
0.5
3.5
3.5
25.0%
25.0%
0.9 0.79
0.9 0.77
0.7
0.7
2.1
The present value (“PV”) factor was based on the following:
-
A cost of equity of 14%. We have approximated the relevant
discount rate by using inputs from the selected comparable
company and available market data. The comparable companies
that were used in our analysis were Oriental Petroleum and
Minerals Corp., PetroEnergy Resources Corp., South China
Resources, Inc., The Philodrill Corporation, and Philex
Petroleum Corp.
-
The timing of cash flows were based on the schedule of subphase 4, and the terms of the option agreement. Due to the
force majeure, Management assumed a 14-month delay in the
schedule.
Sources: Add Energy report, SC 55 option agreement
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18 November 2013
26
5.1 SC 55
Option cash flows
Estimated value
For the mid-case
For the low case:
Options cash flows
USD M
0.6
69.351%
0.4
Low
High
Mid-case
Value
0.3
1.5
Weight
50.0%
50.0%
Weighted
value
0.2
0.7
0.9
For the low case, an 80% probability of securing a suitable rig was
assumed. The resulting value is as follows:
For the high case:
Options cash flows
Net to TA Petroleum
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PwC
0.4
80.0%
0.3
USD M
2.1
69.351%
1.5
1.5
100%
1.5
18 November 2013
27
5.2 SC 69
Service Contract 69
SC 69 value based on TA Petroleum's interest (USD in millions)
5.5
Joint Venture Terms
Low
6.9
Expenditure
High
5.7
-
1
2
3
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4
Joint Venture Terms High
5
6
7
8
Joint Venture Terms Low
18 November 2013
28
5.2 SC 69
The MEE approach
Estimated value
•
table below:
USD M
Historical Costs
Sub-Phase 1 - 3,000 km 2D seismic
Sub-Phase 2 - 900 km 2D seismic
Sub-Phase 3 - 229 sq km 3D seismic
Total Costs
0.7
3.0
3.8
7.6
Total costs
7.6
1.5
11.3
The historical costs were based on Otto’s Authorization For
Expenditure (“AFE”) summary as of December 31, 2012.
•
Sub-phase 1 included the cost of geological and geophysical review
and reprocessing of 3,000 km 2D seismic data.
•
In sub-phase 2, the consortium completed and interpreted the
results of the 900 km of 2D seismic data.
•
The work program for sub-phase 3 involved a 229 sq km 3D seismic
survey. The completion of seismic interpretation in the current subphase is still on-going. Therefore, no budget has been committed
for the next sub-phase.
•
SC 69 has a defined drill target, the Lampos and Lampos South.
However, on October 10, 2013, Otto filed a request with the DOE
for the assignment of the 9% interest to TA Petroleum.
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SC 69 value
*USD in millions
Sources: Otto Energy AFE Summary (December 2012); Add Energy report
•
PEM
Net to TA Petroleum
11.3
50.0%
5.7
will increase from 6% to 15% (pending approval by the DOE) as a result
of the withdrawal of Otto. According to management, the final
ownership of TA Petroleum is 50% (which includes the remaining half
of Otto’s 70% interest), although request for approval will still follow.
18 November 2013
29
5.2 SC 69
The JV approach
•
Background
On February 3, 2011, TA Oil assigned its 9% participating interest to
Otto Energy in exchange for the following considerations:
•
Reimbursement of certain past costs,
• Shouldering half of TA Oil’s 6% share of expenditures in sub-phase
3, and
•
Free carry TA Oil’s 6% share on the drilling of the first well.
On October 7, 2013, TA Petroleum and Frontier Gasfields Pty. Ltd.
jointly requested the Department of Energy for a six-month
extension of the October 7, 2013 deadline to elect to enter the next
exploration sub-phase.
The valuation assumed that the farm-in agreement used in the JV
Estimated value
•
The following costs based on the terms of the farm-in agreement,
USD M
Historical costs
Reimbursements of past costs
Phase 3 - 3D seismic (50%)
Future costs
Phase 4 - 1 well (estimated)
Total
Obligation Probability Payment
Net acquisition
cost
9.00%
SC 69
value
1.2
13.8
*USD in millions
3.5
1.9
9%
6%
100%
100%
0.3
0.1
30.0
6%
30%
0.8
1.2
Net to TA Petroleum
•
Management estimated the cost of drilling an offshore well to be
from USD40-50 M, while the probability of drilling it is 30.0%.
•
On October 4, 2013, Otto notified partners of its withdrawal from
SC 69, the current sub-phase of which expires on November 7,
2013.
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acquired
13.8
50.0%
6.9
Given the uncertainty in securing a six-month extension from the
DOE, an 80% probability was assumed for the low case. The resulting
valuation is as follows:
Probability of securing an extension
6.9
80.0%
5.5
18 November 2013
30
5.3 SC 51
Service Contract 51
SC 51 value based on TA Petroleum's interest
0.6
Value
2.0
0.0
0.5
1.0
1.5
2.0
2.5
USD in millions
Joint Venture Terms
Project Aceite
PwC
18 November 2013
31
5.3 SC 51
The MEE approach
•
•
USD M
Historical Costs
Cost as of December 2012
Sub-Phase 5 - Duhat-2 well
Contingent cost - well testing
Probability Payment
19.6
100%
19.6
-
100%
25%
19.6
Estimated value
Total cost
Source: Otto Energy AFE Summary (December 2012)
•
•
PEM
19.6
Otto Energy’s spent a total of USD19.2 M as of December 31, 2012,
primarily for the drilling of Duhat-1 well, 2D and 3D seismic survey.
Otto’s 2012 general and administrative expense were assumed to be
equal to 2012 budget.
•
On July 25, 2013, Otto decided to plug and abandon the Duhat-2
well for safety and environmental reasons.
•
In its October 2013 meeting, the consortium voted to request the
DOE a 6-month extension of the current Sub-Phase 5 from 31 Jan
2014 to 31 July 2014.
Project Aceite
PwC
SC 51 identified San Isidro and Argao as the primary drill targets.
The results of seismic data acquisition and interpretation,
identification of the drill target, and result of current drillings
suggests a PEM of 1.5
SC 51 value
1.5
29.4
*USD in millions
Net to TA Petroleum
29.4
6.67%
2.0
18 November 2013
32
5.3 SC 51
The JV approach
Background
Under the amended farm-in option agreement entered in January 2011,
Swan and Otto are collectively liable for the drilling of two onshore
wells in the Northern Block to earn a 40% interest each in SC 51 North,
while Swan is obligated to drill one offshore well in the Southern Block
to earn 80% in SC 51 South.
•
The following costs, based on the terms of the farm-in agreement,
North Block
Historical costs
Pre-survey planning
2D seismic
Duhat-1 drilling
G&A for 2012 (estimated)
Future costs
2nd onshore well Duhat-2 (budget)
Total
USD M
Historical costs
Site survey
Pre-drill engineering
G&A for 2012
Argao-1 (estimated)
Total
0.1
5.5
4.2
0.3
20.0%
20.0%
20.0%
20.0%
100.0%
100.0%
100.0%
100.0%
0.0
1.1
0.8
0.1
8.2
18.3
20.0%
50.0%
0.8
2.8
The cost of pre-survey planning, 2D seismic, and drilling of the
Duhat-1 well were shouldered by both Swan and Otto.
•
Management estimated that the probability of successfully drilling
the second well is 50%.
USD M
2.0
0.8
0.3
20.0%
20.0%
20.0%
100.0%
100.0%
100.0%
0.4
0.2
0.1
42.9
46.0
20.0%
40.0%
3.4
4.1
•
The cost of the site survey and pre-drill engineering were
shouldered by Swan.
•
Swan estimated the cost of drilling an off-shore well to be
USD42.9M.
•
Management estimated that the probability of drilling the Argao-1
well is 40%.
•
The general and administrative costs for 2012 were assumed to be
equal to the 2012 budget.
•
The historical costs as of December 31, 2012 were based on the AFE
summary for SC 51.
•
Project Aceite
PwC
South Block
18 November 2013
33
5.3 SC 51
The JV approach
Estimated value
Block
acquired
SC 51 value
North
80%
2.8
3.6
South
80%
4.1
5.1
Total
8.6
*USD in millions
SC 51 (@100%)
Net to TA Petroleum
Project Aceite
PwC
8.6
6.67%
0.6
18 November 2013
34
5.4 SC 6A
Based on the assumptions used in valuing SC 6A, the calculated range
Service Contract 6A
SC 6A value based on TA Petroleum's interest
0.8
1.6
-
0.2
0.4
0.6
0.8
1.0
USD in millions
Joint Venture Terms
Project Aceite
PwC
1.2
1.4
1.6
1.8
18 November 2013
35
5.4 SC 6A
The MEE approach
Estimated value
•
table below:
The following costs were used to estimate the value of SC 6A:
Historical expenditures pre Pitkin farm in
Reimbursement of historical expenditures post Pitkin farm in
Committed phase 1 500 sq km 3D seismic
USD M
40.0
0.2
4.5
44.6
Sources: Pitkin Petroleum PLC 2013 proposed work program and budget, SC 6A
Farm-in agreement, Management estimate
•
Management estimated historical expenditures pre-Pitkin
Petroleum Plc’s (“Pitkin”) farm-in to be USD40M.
•
Pitkin’s proposed 2013 budget included the following: 1) 3D seismic
program, 2) office costs, 3) manpower allocations, and 4) training /
development / scholarship funds.
•
The presence of an interesting target and a committed work
program to 3D seismic data acquisition and interpretation suggests
that the PEM should be 1.5.
Project Aceite
PwC
Total costs
44.6
PEM
SC 6A value
1.5
66.9
*USD in millions
Net to TA Petroleum
66.9
2.334%
1.6
18 November 2013
36
5.4 SC 6A
The JV approach
•
Background
In July 2011, The Philodrill Corp., PetroEnergy Resources Corp., Anglo
Philippine Holdings Corp., Trans-Asia Oil & Energy Development
Corp., Forum Energy Philippines Corp., and Philex Petroleum Corp.,
collectively the “Farmors,” agreed to transfer and assign to Pitkin a 70%
participating interest in SC 6A through the funding of the a 3D seismic
program and two exploration wells. If Pitkin does not elect to drill any
well or only elects to drill one, Pitkin shall cede and reassign its
participating interest at no cost to the Farmors.
Estimated value
acquired
Additionally, Pitkin will reimburse each Farmor for documented
expenditures previously incurred in relation to SC 6A, in an amount up
to but not exceeding USD150,000.
•
70%
Phase 1 - 500 sq km 3D seismic
Phase 2 - 1 well
Phase 3 - 1 well
Total
25.5
SC 6A value
36.4
*USD in millions
were used to estimate the value of SC 6A:
Reimbursement of expenditures
Total
Management estimated the cost of the first well to be from USD3040 M and the 2nd well to be from USD40-50 M.
USD M
0.2
0.2
Net to TA Petroleum
36.4
2.334%
0.8
4.5
35.0
45.0
84.5
Sources: SC 6A Farm-in agreement, Pitkin Petroleum PLC
2013 proposed work program and budget, Management
estimates
Project Aceite
PwC
18 November 2013
37
5.5 SC 6B
Based on the assumptions used in valuing SC 6B, the calculated range
Service Contract 6B
SC 6B value based on TA Petroleum's interest
0.3
1.0
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
USD in millions
Joint Venture Terms
Project Aceite
PwC
18 November 2013
38
5.5 SC 6B
The MEE approach
Estimated value
•
table below:
The following costs were used to estimate the value of SC 6B:
Historical Costs
Total Costs
USD M
6.7
0.2
6.9
Total costs
6.9
Source: Department of Energy validated cost recoverable letter (August 13, 2012); Add Energy
report
•
PEM
1.0
SC 6B value
6.9
*USD in millions
The total cost of USD669k represents Department of Energy (DOE)
- validated recoverable costs as of December 31, 2009. TA
Petroleum had a 10% interest in SC 6B prior to 2000, when
substantially all the above costs were incurred.
•
Major expenses were primarily related to the drilling of the Bonita
well.
•
In December 2012, the consortium failed to bag DOE’s approval to
revive the Bonita field.
•
On August 2, 2013, the same decision was reaffirmed by the DOE
due to the failure of one of the farminees to demonstrate technical
and financial capacity. However, the presence of a drillable target
and history of oil production suggest a PEM of 1.0.
Project Aceite
PwC
Net to TA Petroleum
6.9
14.06%
1.0
remains at 14.06% even after the failure of the farminees to
demonstrate their financial capacity as service contractor to the DOE
and subsequent DOE disapproval of the proposed farm-in.
18 November 2013
39
5.5 SC 6B
The JV approach
•
Background
In December 2011, Peak Oil and Gas Philippines Limited (Australia),
Blade Petroleum Philippines Limited (Australia), and VenturOil
Philippines, Inc. acquired a 64.53% participating interest in exchange
for carrying the farm-out parties in all future work programs and
budgets until first oil production. In the above farm-in agreement, Nido
Petroleum retained its 7.812% interest and did not participate in
assigning 70% of its working interest to the farminees.
•
were used to estimate the value of SC 6B:
USD M
Future costs
G&G Studies
Cadlao
Total purchase price
27.7%
27.7%
100.0%
25.0%
0.1
0.9
10.0
22.7
27.7%
12.5%
0.3
1.3
Estimated value
the joint venture approach is presented in the table below:
Participating
interest acquired
64.53%
1.3
SC 6B value
2.0
*USD in millions
•
The above work programs represent forecast activities to
successfully tie-back the SC 6B to the Cadlao field.
•
Based on the terms of the contract, only the remaining interests of
the farmors of 27.66% were considered in determining the purchase
price. Nido Petroleum will shoulder its own cost in the above work
programs.
Project Aceite
PwC
Our valuation assumed that the farm-in agreement used in the JV
0.2
12.5
Management estimated that the probability of drilling an
exploration well is 25%, while the completion of the tie-back to
Cadlao is 12.5%.
SC 6B Valuation (@100%)
Net to TA Petroleum
2.0
14.06%
0.3
18 November 2013
40
Appendices
Project Aceite
PwC
18 November 2013
41
1 Sources of information
In the course of our valuation analyses, we relied upon interviews with
the Client, financial and other information obtained from Management,
and from various public and industry sources. Our conclusion is
dependent on such information being complete and accurate in all
material respects.
The principal sources of information used in performing our valuation
include:
•
Historical, committed, and future costs regarding the SCs provided
by the Client;
•
Service contracts and farm -in agreements provided by the Client;
•
Discussions with the Client;
•
Capital IQ’s on-line database covering financial markets,
commodities, local stock prices, and news;
•
Publicly available resources, such as publications, etc.;
•
Disclosures in the Philippine Stock Exchange (“PSE”) website;
•
Company websites; and
•
Technical valuation reports provided by the Client’s technical
valuation team, Add IPS Pty. Ltd.
Project Aceite
PwC
18 November 2013
42
2 Cost of equity
Cost of equity
•
Cost of Equity – The cost of equity capital is estimated using the
Capital Asset Pricing Model (CAPM), which assumes the cost of
equity is equal to the return on risk-free securities plus the ERP
adjusted for the company’s systematic risk (Beta). The general
formula for the cost of equity is:
-
Ke = Rf + Beta * (Rm – Rf)
◦
Rf = Risk-free rate of return
◦
Beta = Systematic risk for the company’s equity
◦
Rm – Rf = ERP = The equity market’s return premium over
the risk free return
Project Aceite
PwC
18 November 2013
43
Glossary
Term
Definition
Add Energy
Add IPS Pty. Ltd
AFE
Authorization For Expenditure
BHPB
BHP Billiton
CAGR
Compound Annual Growth Rate
Capital IQ
S&P Capital IQ
CAPM
Capital Asset Pricing Model
Client / TA Oil
Company / TA Petroleum
CMLLC
Chevron Malampaya LLC
DOE
Department of Energy
EIA
Energy Information Administration
ERP
Equity Risk Premium
Frontier
Frontier Gasfields Ltd.
FY
Financial Year Beginning 1 January and Ending 31 December
GAAP
Generally Accepted Accounting Principles
GPoS
Geological Probability of Success
Kd
Cost of Debt
Ke
Cost of Equity
Project Aceite
PwC
18 November 2013
44
Glossary
Term
Definition
LTM
Last Twelve Months
Management
The management of TA Oil
MEE Method
Multiple of Exploration Expenditure Method
MMbbls
Million Barrels
JV Method
Km
Kilometer
PCSA
Palawan Council for Sustainable Development
PE
Price to Earnings Ratio
PEM
Prospective Enhancement Multiplier
P55
Palawan55 Exploration & Production Corporation
PhP
Philippine Peso
Pitkin
PNOC
Philippine National Oil Corporation
PSE
Philippine Stocks Exchange
PV
Present Value
PwC
PricewaterhouseCoopers LLP
Rf
Risk-free Rate
RoW
Rest of the World
SC
Service Contract
Project Aceite
PwC
18 November 2013
45
Glossary
Term
Definition
SEC
Securities and Exchange Commission
SEP Clearance
Strategic Environmental Plan Clearance
SIC
Standard Industrial Classification
SPEX
Shell Pilipinas Exploration BV
SSP
Small Stock Premium
Swan
Swan Oil and Gas Ltd.
TA Oil
TA Petroleum
Tcf
Trillion Cubic Feet
USD
US Dollars
Valuation Date
September 30, 2013
Project Aceite
PwC
18 November 2013
46
Valuation of Sevice Contracts
Philippines
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0
Mar 13
Table of Contents
1.
INTRODUCTION ............................................................................................................................. 5
2.
DATA AND SCOPE OF WORK ...................................................................................................... 5
3.
DISCLAIMER ................................................................................................................................... 5
4.
SUMMARY OF RESULTS............................................................................................................... 6
5.
BASIS FOR NET PRESENT VALUE ESTIMATES OF PROSPECTIVE RESOURCES ............... 6
5.1
5.2
5.3
5.4
5.5
5.6
6.
SERVICE CONTRACT 6 – OFFSHORE N.W. PALAWAN .......................................................... 11
6.1
6.2
6.3
6.4
7.
Background .......................................................................................................................... 19
South Block Valuation .......................................................................................................... 21
Conclusions ......................................................................................................................... 22
SERVICE CONTRACT 55 - SOUTHWEST PALAWAN. .............................................................. 23
8.1
8.2
8.3
8.4
9.
Background .......................................................................................................................... 11
Valuation of SC 6A (Octon) ................................................................................................. 11
Valuation of SC 6B (Bonita) ................................................................................................. 13
Conclusions ......................................................................................................................... 16
SERVICE CONTRACT 51 – EAST VISAYAN BASIN .................................................................. 19
7.1
7.2
7.3
8.
Deepwater ............................................................................................................................. 7
Shallow Water ........................................................................................................................ 8
Mid Water .............................................................................................................................. 9
Onshore ................................................................................................................................. 9
Conclusions ........................................................................................................................... 9
References .......................................................................................................................... 10
Background .......................................................................................................................... 23
Valuation of SC-55............................................................................................................... 24
Valuation of Trans-Asia’s Holding in SC-55 ........................................................................ 25
Conclusions ......................................................................................................................... 26
SERVICE CONTRACT 69 – EAST VISAYAS .............................................................................. 28
9.1
9.2
9.3
9.4
Background .......................................................................................................................... 28
Uncertainties ........................................................................................................................ 29
Valuation .............................................................................................................................. 30
Conclusions ......................................................................................................................... 32
10. PERSONNEL ................................................................................................................................. 33
11. ADD IPS AND ADD ENERGY....................................................................................................... 33
11.1 Capabilities and Services .................................................................................................... 33
11.2 The add energy group as..................................................................................................... 34
Valuation of Sevice Contracts
Philippines
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List of Tables
Table 4.1:
Table 5.1:
Table 6.1:
Table 6.2:
Table 6.4:
Table 6.5:
Table 6.7:
Table 6.9:
Table 7.1:
Table 7.3:
Table 8.1:
Table 8.2:
Table 8.3:
Table 8.4:
Table 8.5:
Table 9.1:
Table 9.2:
Table 9.3:
Summary of Results .............................................................................................................. 6
NPV estimates for as yet undiscovered hydrocarbon resources in the Philippines ............. 9
Trans-Asia Interest in SC-6 Retained Areas ....................................................................... 11
Agreed Farm-in work Programme ....................................................................................... 11
SC6A (Octon) Prospects and Leads ................................................................................... 12
SC6A (Octon) Uncertainties ................................................................................................ 13
SC6B (Bonita) Equities ........................................................................................................ 14
SC6B (Bonita) Farm-in Work Programme Costs................................................................. 15
SC51 North and South Block Equites ................................................................................. 19
SC51 South Block Valuation ............................................................................................... 21
SC55 Equities ...................................................................................................................... 23
Current SC-55 Permit Timing .............................................................................................. 23
SC-55 Prospects ................................................................................................................. 24
Current Valuation of 100% Equity in SC-55 ........................................................................ 25
Frontier Gasfield’s Payments to Trans-Asia to Retain and Exercise the Option................. 26
SC-69 Prospect Details ....................................................................................................... 28
Key Uncertainties ................................................................................................................ 29
SC69 Current Valuation ....................................................................................................... 30
List of Figures
Figure 5.1:
Figure 6.1:
Figure 6.2:
Figure 7.1:
Figure 8.1:
Figure 9.1:
NPV per BOE versus Total Capex for Various Reservoirs, Deepwater G.O.M. .................. 8
Map Showing Location of SC6A (Octon) ........................................................................... 17
Map Showing Location of SC6B (Bonita) ........................................................................... 18
Map Showing Location of SC51 North and South Blocks .................................................. 22
Map Showing Location of SC55 Prospects ........................................................................ 27
Map of SC-69 Showing Lampos, Lampos South and East Managao Prospects ............... 32
Valuation of Service Contracts
Philippines
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Date:
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0
Mar 13
1. Introduction
In January 2013 Trans-Asia Oil and Energy Corporation (Trans-Asia) commissioned
add ips pty ltd to prepare a valuation of Tran-Asia’s holdings in four oil and gas
Service Contracts in the Republic of the Philippines.
This report presents the results of the valuation work carried out by add ips during
February and March 2013.
2. Data and Scope of Work
For each Service Contract Trans-Asia provided the following documentation:
i.
A history of the Service Contract since initial award
ii.
Copies of Service Contract and Joint Operating Agreement.
iii.
Copies of any currently applicable farm-in agreements and/or option
agreements.
iv.
Deeds of assignment and assumption.
v.
Copies of approved 2013 work programmes and budgets where available.
vi.
Copies of presentation material from recent joint venture meetings.
vii.
Copies of independent technical assessments where available.
In addition Add ips has gathered information from its own internal sources, from
public domain announcements made by the Operators of the four Service Contracts
and from information published by the Philippines Department of Energy and on other
public domain websites.
Where forecast work programme costs have been used in the valuation, the costs
have been checked for reasonableness by add ips and adjusted if necessary.
Where forecasts of potential hydrocarbon resources have been used in the
valuations Add ips has used the Operator’s assessment of potential volumes. Add
ips has not undertaken any independent geological, geophysical or petrophysical
analysis and has not attempted to estimate the potential hydrocarbon resources
present within any of the Service Contracts. Add ips has not attempted to estimate
the Geological Probability of Success (GPOS) of any future exploration well.
3. Disclaimer
Based upon data provided by Trans-Asia and publically available information an
estimate has been made of the current risked value of Trans-Asia’s interests in
Service Contracts 6, 51, 55 and 69 in the Republic of the Philippines.
The valuations are based on a number of key assumptions and should any of these
assumptions change, the valuation will change, possibly significantly. However we
believe that these are fair valuations based on currently available information.
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add ips accepts no liability for the accuracy of these valuations, nor do we warrant
that our enquiries have revealed all of the matters, which a more extensive
examination might disclose. In particular, we have not independently verified property
title, encumbrances, or regulations that apply to these assets.
add ips has no financial interest, other than to the extent of the professional fees
receivable for the preparation of this report, which could reasonably be regarded as
affecting our ability to give an unbiased view of these assets.
4. Summary of Results
The estimated current risked values of Trans-Asia’s interests in each of the four
service contract are shown in the table below. All values are in millions of US dollars.
Table 4.1: Summary of Results
Service Contract
Trans-Asia
Holding
SC 6A (Octon)
2.334%
Estimated Current
Risked Value
(US$ millions)
2.8
SC 6B (Bonita)
14.063%
0.4
SC 51 North
6.67%
5.5
SC 51 South
6.67%
0.0
SC 55
6.82%
32.9
SC 55
5% Option
2.3
SC 69
6%
4.6
Total
Comment
Trans-Asia has sold the
option to Frontier
Gasfields
48.5
5. Basis for Net Present Value Estimates of Prospective
Resources
The potential net present value of a future revenue stream from as yet undiscovered
oil, gas or condensate resources depends on many factors, most of which are not yet
known. They include the following:
i.
The size and nature of the hydrocarbon resource
ii.
The presence of contaminants such as CO2, H2S, mercury etc
iii.
The depth of the reservoir
iv.
The nature of the reservoir (thickness, permeability, heterogeneity etc)
v.
Future market prices for oil, gas and condensate
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vi.
Availability and market rates for drilling rigs and other major equipment
vii.
If offshore: Water depth, weather patterns, distance to shore, seabed
conditions at field location and along pipeline routes, environmental constraints
etc.
viii.
If onshore: Nature of the terrain and current land use, distance to road or
pipeline infrastructure, local population density, environmental constraints etc.
In the absence of the above information it is not possible to calculate a precise value
for yet to be discovered resources. However it is possible to make an estimate of the
likely net present value (NPV) per unit of production based on publicly available data
of analogous developments and knowledge of the Philippines fiscal regime.
5.1 Deepwater
A recent study released by Wood Mackenzie illustrates the range of values than can
be achieved in deepwater developments (Figure 5.1). They looked at data from five
different geological units that are being developed or considered for development in
the Gulf of Mexico. You will see that the NPV per BOE ranges from less than $1 per
BOE up to $13 per BOE for different reservoirs. The Paleogene (or Lower Tertiary)
data may not be applicable to offshore Palawan because Paleogene wells in the
G.O.M. are expensive to drill and complete because targets are very deep and the
reservoirs are complex. Operators also need high-specification subsea equipment to
manage high pressures and temperatures. A high well count is also required as
reservoir qualities are poor. If Paleogene developments are ignored, the potential
range of NPV narrows to $4-13 per BOE.
There are two existing deepwater developments in the Philippines, namely
Malampaya (gas and condensate) and Galoc (oil). Malampaya data has to be used
with care because (i) the development activities commenced in 1998 and the offshore
industry cost base has increased substantially since then and (ii) although the wells
are in deepwater, the Malampaya platform is in shallower water and this provides
significant cost savings. Based on field specific data published by Wood Mackenzie
the full life cycle NPV of Malampaya is around $4/BOE and of Galoc is around
$10/BOE.
Estimated values of potential deepwater discoveries have also been published by a
number of companies engaged in exploring offshore Philippines (see list of
references below). The published values average at just over $10/BOE.
Based on the above data it is considered that it would be reasonable to assume an
NPV of $10/BBL for oil developments in deepwater offshore the Philippines and an
NPV of $0.50/MCF for potential gas developments.
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Figure 5.1: NPV per BOE versus Total Capex for Various Reservoirs, Deepwater
G.O.M.
Nomenclature
CPM
SPM
JUR
LM
PAL
Conventional Pliocene and Miocene.
Subsalt Pliocene and Miocene
Jurassic
Lower Miocene
Paleogene
5.2 Shallow Water
A 2011 report by Wood Mackenzie on shallow water developments in S.E. Asia
indicated that the average value achieved in the region was $12.8 per BOE. The
results were based on data from 60 fields.
There is little published data specific to shallow water fields in the Philippines but a
2011 report on the forthcoming Cadlao project suggested an NPV of around $24/bbl.
Based on the above it is considered that $15 per bbl or $0.75/MCF are reasonable
estimates of value for yet to be discovered resources in shallow water in the
Philippines.
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5.3 Mid Water
Drilling in mid-water depths of 100 to 1000 metres is generally undertaken by semisubmersible drilling rigs which are cheaper than the drill-ships required in deepwater,
but more expensive than the jackup rigs used in shallow water. Overall development
costs follow the same trend with development costs in mid-water being intermediate
between development costs in deepwater and costs in shallow water.
As a result of the relative development costs, the value of discovered resources in
mid-water depths will be intermediate between the values anticipated in deepwater or
shallow water.
5.4 Onshore
There is almost no data relating the economics of onshore developments in the
Philippines. However, by analogy with other countries in S.E. Asia it is known that
development economics are typically similar to developments in shallow water
offshore.
For the purpose of this study, the assumption is made that resources discovered
onshore will have a similar value to resources discovered in shallow water offshore.
5.5 Conclusions
Based on publicly available data and knowledge of the operating environment and
fiscal regime, the following are believed to be reasonable estimates of value for as
yet undiscovered hydrocarbon resources in the Philippines:
Table 5.1: NPV estimates for as yet undiscovered hydrocarbon resources in the
Philippines
Onshore
Shallow Water
Mid Water
Deep Water
Water Depth
(m)
Gas NPV
($/MCF)
Oil/Condensate
NPV ($/BBL)
n/a
Less than 100
100-1000
Over 1000
0.75
0.75
0.625
0.50
15
15
12.5
10
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5.6 References
Author & Date
Nido Petroleum
June 2010
KPMG
January 2011
DeGolyer
MacNaughton
31 March 2011
Wood Mackenzie
February 2011
Wood Mackenzie
October 2011
Casimir Capital Ltd
August 2012
GMP Securities
January 2013
Wood Mackenzie
January 2013
Title
AGM Presentation
Independent Experts Report and
GCA Valuation of Cadlao Oilfield
& Report on Prospective Resources
of Certain Prospects Owned by
Nido Petroleum in the Philippines
Asset Analysis of SC 14 (Galoc)
Source
Nido Petroleum website
Raisama
Energy
website
Nido Petroleum website
Wood Mackenzie
Report on Unlocking Value from Wood Mackenzie
Small Fields in South East Asia
Evaluation of Otto Energy Ltd
Otto Energy website
Evaluation of Otto Energy Ltd
Otto Energy website
Report: Emerging Plays Boost Wood Mackenzie
Economic
Attractiveness
of
Deepwater
Gulf of Mexico
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6. Service Contract 6 – Offshore N.W. Palawan
6.1 Background
Service Contract 6 was originally awarded in September 1973 and was amended in
February 1978 as a result of various assignments of interest. Oil was produced from
the Cadlao Field from August 1981 until November 1991.
After various relinquishments, three separate areas have been retained and the
Service Contract has been extended until March 2024. Trans-Asia’s current interest
in each of these areas is shown in the table below:
Table 6.1: Trans-Asia Interest in SC-6 Retained Areas
Service
Contract
SC 6
(Cadlao)
SC 6A
(Octon)
SC 6B
(Bonita)
SC Phase
Operator
Expiry
Trans-Asia
Equity
Interest
Production
Cadco
28/2/2024
Zero
Production
Pitkin
28/2/2024
2.334%
Production
Philodrill
28/2/2024
14.063%
6.2 Valuation of SC 6A (Octon)
2011 Farm-in Agreement with Pitkin Petroleum Plc
In July 2011 the SC 6A(Octon) consortium entered into a Farm-in Agreement with
Pitkin Petroleum Plc. The outline terms of the Farm-in Agreement are for Pitkin to
earn 70% equity in the block in return for reimbursing some past costs and carrying
the Farmout Parties though a three phase work programme as shown below:
Table 6.2: Agreed Farm-in work Programme
Phase
1
Activity
Pay back costs of $150,000
G&G Study and Acquire 500 sq km of new
3D Seismic
2
Drill one well
3
Drill one well
Duration
18
months
18
months
18
months
Status
Paid
Firm,
committed
Pitkin Option
Pitkin Option
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The resulting changes in equity are shown in the table below. If Pitkin does not
complete all three work programme phases the equity in the block will be returned to
the farm-out parties.
Table 6.3: SC6A (Octon) Equities Before/After Farm-in
Philodrill
PetroEnergy Resources
Anglo Philippine Holdings
Trans-Asia
Forum Energy
Philex Petroleum
Alcorn Gold
Pitkin Petroleum
Total
Prior to Farm-in
After Farm-in
51.65%
16.67%
11.11%
7.78%
5.56%
5.56%
1.67%
0.00%
100.00%
15.50%
5.00%
3.33%
2.33%
1.67%
1.67%
0.50%
70.00%
100.00%
The initial G&G work undertaken by Pitkin has included a reinterpretation of the
existing 3D seismic. In December 2012 Pitkin presented the results of this work
which included the potential recoverable reserves for five identified prospects or
leads as shown in the table below.
Table 6.4: SC6A (Octon) Prospects and Leads
Prospect/Lead
Barselisa GCU
Barselisa BCU
Malajon Anticlinorium GCU
East Barselisa GCU
East Barselisa BCU
Average
Mean Prospective Recoverable
Resources (mmbbl)
135
52
136
43
14
76
The value of SC6A (Octon) depends on whether the new 3D confirms the existence
of a drillable prospect and Pitkin exercises the option to proceed to Phase-2 and drill
an exploration well.
In estimating a current value for the block a number of
uncertainties have to be addressed as shown in the table below:
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Table 6.5: SC6A (Octon) Uncertainties
Uncertainty
Will the new 3D confirm
the presence of a drillable
prospect?
GPOS of first exploration
well
Assumption
or Probability
Used in this
Valuation
50%
25%
Probability of a discovery
being
commercially
developed
How large might
discovery be?
the
85%
76 mmbbl
Basis
This is unknown so
probability is assigned.
a
50/50
Companies rarely drill exploration
wells if the GPOS is below 25% so
this
value
is
considered
conservative.
Pitkin believes the charge would
probably be oil. An oil discovery in
shallow water offshore Palawan
would have an 85% chance of
being commercial.
This is the average size of the five
prospects identified by Pitkin.
Using the above probabilities a value for Trans-Asia’s 2.33% in SC6A (Octon) can be
calculated as shown below.
Table 6.6: SC6A (Octon) Valuation
Probability of new 3D defining a drillable prospect
GPOS for first well
Mean Prospective Recoverable Resources
Oil value on discovery
Unrisked value of a commercial oil discovery
Current risked value of a discovery
Trans-Asia Equity
Current risked value of TrasAsia's share
50%
25%
85%
11%
76
15
1139
121
2.33%
2.8
MM BBL
$/BBL
$ million
$ million
$ million
6.3 Valuation of SC 6B (Bonita)
2013 Work Programme
There is no firm work commitment to drill an exploration well in SC6 (Bonita) and thus
no value can be ascribed to the block on the basis of ‘potential resources’.
2011 Farm-in Agreement with Peak Oil and Gas (and others)
In February 2011 a farm-in agreement was executed with Peak Oil and Gas, Blade
Petroleum, and VenturOil (jointly the Farminees) under which the Farminees would
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carry the Farmout Parties’ (including Trans-Asia) share of costs to drill an exploration
well and, in the success case, install a subsea tie-back to the nearby Cadlao
production facilities. The Farmout Parties would start to receive cashflow from
production only after the Farminees had recovered all of their costs.
The equities in SC 6B (Bonita) before and after the proposed farm-in are shown
below:
Table 6.7: SC6B (Bonita) Equities
Phoenix
Philodrill
Oriental
Trans-Asia
Forum
Energy
Alcorn
Nido
Petroleum
Farminees
Total
Prior to
Farm-in
After
Farm-in
28.125%
21.875%
14.063%
14.063%
7.031%
8.438%
6.563%
4.219%
4.219%
2.109%
7.031%
7.812%
2.109%
7.812%
0.000%
100.000%
64.532%
100.000%
The farmout parties claim that the agreement lapsed in December 2012 but this has
been disputed by Peak Oil and Gas. The situation is slightly unclear but at the
moment the equities in the block are as shown in the ‘Prior to Farm-out’ column in the
table above. Even though the farm-in agreement may have lapsed it can be used as
a basis to determine a potential value for SC6B (Bonita).
At the time the farm-in agreement was executed in 2011 the forecast activities and
costs for SC6B (Bonita) were as follows:
Table 6.8: SC6B (Bonita) Proposed Farm-in Work Programme
Year
Activity
2012
2013
2014
G&G Studies
Cadlao
Produce Oil
2015
Gross Cost
($million)
0.2
12.5
10.0
Farm-out Parties
Share of Gross
Cost
($million)
0.06
3.46
2.77
The Farminees were to acquire 64.5% equity in the block and in return they would
pay the costs of the Farmout parties through the above work programme. In the
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exploration success case they would recover their costs through the SC cost
recovery mechanism.
The consideration to be paid by the Farminees for their 64.5% equity in the block is
therefore made up of two components:
a) In the exploration failure case, the cost of the G&G studies and the
exploration well are not recovered.
b) In the exploration success case, the costs are recovered some years later
and the Farminees are effectively providing an interest free loan to the Farmout parties.
The proposed exploration target was a prospect called East Cadlao which has mean
prospective recoverable resources of around 2.5 mmbbl. The probability of a
commercial discovery at East Cadlao was put at 50% by the Farminee’s geologists.
The potential cashflow to be provided by the Farminees for the benefit of the Farmout
Parties is shown in the table below.
Table 6.9: SC6B (Bonita) Farm-in Work Programme Costs
Year
Activity
2012
2013
2014
G&G Studies
Cadlao
Produce Oil and Recover Costs
Discounted NPV of Cashflow
2015
Cashflow
Provided in
Exploration
Failure Case
($million)
-0.06
-3.46
0.00
Cashflow
Provided in
Exploration
Success Case
($million
-0.06
-3.46
-2.77
0.00
-2.91
+6.28
-0.70
Since the two possible exploration outcomes lead to different cashflows and Net
Present Values the ‘most likely’ NPV can be calculated as follows:
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Table 6.10: SC6B (Bonita) Farm-in Work Programme NPV
Event
Outcome
Discovery,
complete and tieback
POS
50%
Dry Hole
50%
Next
Event
POS
Recover All 100%
Costs
NPV
$million
-0.70
Risked
NPV
-0.35
Farm-in
and drill
well
No Cost
100%
-2.91
Recovery
Risked NPV of Cashflow Provided to Farm-out Parties
-1.45
-1.80
The 2011 Farminees were prepared to provide $1.80 million to the Farmout Parties in
order to acquire 64.5% of SC 6B (Bonita).
On the basis that the 2011 Farm-in has lapsed (or not proceeded yet) and Trans-Asia
currently holds 14.06% in the Service Contract the value of Trans-Asia’s equity can
be calculated by analogy.
The value of Trans-Asia’s equity is $ 1.8m X 14.06/64.5 = $0.4 million.
6.4 Conclusions
Trans-Asia’s current 2.33% equity in SC 6A (Octon) has a current risked value of
$2.8 million.
Based on the terms of the 2011 Farm-in Agreement with Peak Oil and Gas and
others, the value of Trans-Asia’s current 14.06% equity in SC 6B (Bonita) is
estimated to be $0.4 million.
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Figure 6.1: Map Showing Location of SC6A (Octon)
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Figure 6.2: Map Showing Location of SC6B (Bonita)
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7. Service Contract 51 – East Visayan Basin
7.1 Background
Service Contract 51 was originally awarded to Trans-Asia, Alcorn Gold and
PetroEnergy Resources in July 2005. Since then there have been a number of farmin deals and assignments of interest. The licence covers two blocks in the East
Visayan Basin;
a) A northern mostly onshore block on the northwest tip of the island of Leyte; and
b) A southern offshore block between the islands of Cebu and Bohol.
Both blocks can be considered frontier exploration areas and relatively underexplored. At the current time the equities in the two blocks are as follows:
Table 7.1: SC51 North and South Block Equites
North Block
Otto Energy
Alcorn Gold
Trans-Asia
PetroEnergy
Total
80.00%
9.32%
6.67%
4.01%
100.0%
South Block
Frontier
Oil
(Option)
Alcorn Gold
Trans-Asia
PetroEnergy
Total
Corporation
80.00%
9.32%
6.67%
4.01%
100.0%
Note:
On 23 October 2012 Frontier Oil Corporation entered into an option agreement under
which it secured the option to farm-in to the South Block in return for carrying the
other JV parties through the drilling of an exploration well on the offshore Argao
Prospect.
At the time of writing this report the FOC farm-in option had not been exercised. If
the option is exercised it is the intention of the parties to both blocks to request the
Department of Energy to formally separate SC-51 into two separate blocks.
North Block Valuation
During 2012 Otto Energy, on behalf of its Joint Venture partners, acquired 100km of
new high quality 2D seismic data over the San Isidro anticline. This anticline has
been identified from surface information for sometime but was previously poorly
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understood and only defined by sparse and poor quality seismic. The new data has
confirmed a large target, the San Isidro Anticline, which will be tested by the Duhat-2
well.
In September 2012 Otto Energy purchased an additional 40% working interest in SC
51 North Block from SWAN Oil & Gas Ltd for A$1.25 million. Otto Energy will perfect
earning 80% working interest in SC 51 North Block by paying 100% of the cost of
drilling the onshore Duhat-2 well at a cost of circa US$6 million, and then
subsequently drilling a second onshore well.
Planning for the Duhat-2 well is already underway and it is expected to be drilled in
mid 2013. According to Otto Energy, the mean recoverable resources of the targeted
San Isidro anticline are 23MMbbl.
The geological probability of success (GPOS) for Duhat-2 has not been published by
the current Operator (Otto Energy). However, in October 2011 Swan Oil and Gas
commissioned an independent geologists report from RPS Energy and in that report
the GPOS for the San Isidro Prospect was estimated to be 17%. Since that time the
Duhat-1 well has been drilled and, although it did not reach the reservoir, it will have
undoubtedly provided information about the subsurface conditions and allowed an
updated estimate of GPOS to be made.
We consider it is extremely unlikely that Otto Energy would have taken the decision
to increase its equity to 80% and pay 100% of the cost of the Duhat-2 well if the
GPOS was below 25%. Therefore a conservative GPOS of 25% is used in the
analysis.
Since this development would be onshore and the target is at a depth of only 1000m
it would probably be commercial even if only a small resource was found. Therefore
the probability of a discovery being commercially developed is estimated to be
95%. This reflects a 5% chance that the reservoir quality is so poor that wells will not
flow.
Table 7.2: SC51 North Block Valuation
Prospect
Mean Prospective Recoverable Resources
(MMBBL)
Oil NPV ($/BBL)
GPOS
Probability of Discovery Being Commercial
Risked NPV ($million)
Trans-Asia Equity
Risked NPV of Trans-Asia Equity ($ million)
San Isidro
23
15
25%
95%
82
6.67%
5.5
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7.2 South Block Valuation
In 2008 Otto Energy contracted RPS Energy to undertake a seismic interpretation
and provide a prospectivity report based on data within the 2D and 3D survey areas
of the SC51 Southern Block.
The 3D was specifically acquired to further delineate the Argao prospect, a large
anticline interpreted on earlier 2D data. The interpretation confirmed the structural
closure of the Argao prospect at eight potentially prospective levels and identified a
further six smaller prospects within the 3D area. The mean prospective recoverable
resources for the Argao prospect were estimated by RPS to be 49 MMbbl and the
geological probability of success was put at 34%. In May 2011 Swan Oil and Gas
commissioned an updated independent geologists report from RPS Energy and in
that report the GPOS for the Argao was estimated to be 33%.
In 2012 a revised study of SC-51 South Block prospectivity was undertaken by Arex
Energy and built on the previous work by RPS. Arex Energy’s conclusion was that
the most likely reserves for the main viable target within the Argao Prospect (the Intra
Toledo) are 12 mmbbls, with an upside of 30 mmbbls. Arex Energy did not provide
an estimate of GPOS.
For the purpose of this valuation, the Arex estimate of potential recoverable reserves
of 12 mmbbl and the RPS estimate GPOS of 33% will be used.
The value of the South Block is entirely dependent on whether Frontier Oil
Corporation exercises its option to farm-in and commits to drilling a well on the Argao
Prospect. Until the option is exercised and there is a commitment to drill an
exploration well, no value can be ascribed to the South Block.
After the option is exercised and the well is committed, a risked value for the block
can be calculated as shown below. Note that even after a well is committed there
remains a possibility that a rig may not be secured or that Frontier will have a change
of heart. Up until a rig contract is signed the probability of a well being drilled is
assumed to be 90%. After a rig contract is signed this would increase to 100%.
Table 7.3: SC51 South Block Valuation
Prospect
Mean Prospective Recoverable Resources (MMBBL)
Oil NPV ($/BBL)
Unrisked Asset NPV ($million)
Probability Of Well Being Drilled
GPOS
Probability of Being Commercial
Risked NPV ($million)
Trans-Asia Equity
Risked NPV of Trans-Asia Equity ($ million)
Argao
12
12.5
150
90%
33%
85%
38
6.67%
2.5
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7.3 Conclusions
The current risked value of Trans-Asia’s 6.67% equity in the North Block is calculated
to be $5.5 million.
The current risked value of Trans-Asia’s 6.67% equity in the South Block is zero.
However if Frontier Oil Corporation exercises its farm-in option and commits to drilling
the Argao prospect, the risked value of Trans-Asia’s 6.67% equity in the South Block
would increase to $2.5 million.
Figure 7.1: Map Showing Location of SC51 North and South Blocks
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8. Service Contract 55 - Southwest Palawan.
8.1 Background
Service Contract 55 was awarded in August 2005.
The SC-55 JV has acquired, processed and interpreted a large amount of new 2D
and 3D seismic data in the block. The extensive seismic data indicates the presence
of an active petroleum system coupled with a series of large to very large Nido
Carbonate structures that supplement the previously identified clastic Hawkeye
prospect.
In May 2011 Otto Energy announced that BHP Billiton had exercised its option to
farm-in to SC-55. Under the terms of the farm-in agreement BHPB will become the
Operator and will earn a 60% interest in the licence area by funding two wells and
reimbursing Otto’s previous costs. BHPB can elect to drill just one well but would
relinquish 30% of its interest in the licence back to Otto.
The current working interests in Service Contract 55 are:
Table 8.1: SC55 Equities
Otto Energy (through wholly
owned subsidiary NorAsian
Energy Ltd)
BHP Billiton Petroleum
(Philippines) Corporation
Trans-Asia Oil and Energy
Development Corporation
33.18%
60.00%
6.82%
BHPB is now the Operator of SC-55. In early 2012 BHPB requested an extension in
order to secure an appropriate ultra deepwater rig with specialised well control
equipment to promote safe drilling operations on the proposed Cinco prospect.
Availability of such rigs is currently limited and this fact was taken into consideration
in determining the duration of the extension. In May 2012 the Philippines Department
of Energy approved an extension of 12 months to Exploration Sub-Phase 4 of SC-55.
The revised permit timing is as follows:
Table 8.2: Current SC-55 Permit Timing
Sub-Phase
Period
Sub-Phase 4
5 August 2011 to
5 August 2013
5 August 2013 to
5 August 2014
Sub-Phase 5
Work Program
Commitment
Drill 1 well
Drill 1 well
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The JV has identified at least seven prospects in the block. The potential
recoverable reserves for each of these prospects are shown in the table below:
Table 8.3: SC-55 Prospects
Prospect
Gas
(TCF)
Condensate
(MMBBL)
Oil
(MMBBL)
Note
Cinco
Hawkeye
Uno
Tres
Dos
Quattro
Seis
Total
2.1
0.8
0.9
4.4
0.5
0.5
11.0
20.0
74
27
29
156
18
19
385
708
0
204
0
0
0
0
0
204
1
2
1
1
1
1
1
Notes
1
2
Based on recoverable reserve estimates published by
Otto Energy
Based on GIIP and STOIIP estimates published by Otto
Energy and recovery factors of 30% for oil and 60% for
gas
The initial exploration target (Cinco) is a Nido Carbonate gas/condensate target,
analogous to the producing Malampaya Field (2.5 TCF of gas and 81 million barrels
of condensate). Detailed interpretation of the 3D seismic data has resulted in an
estimated mean gross recoverable resource at Cinco of 2.1 trillion cubic feet of gas
and 74 million barrels of condensate.
Water depth at Cinco is 1430m and it is estimated that the cost to drill and test a well
will be in the range of $60m to $100m. A cost estimate of $80m is used in this
analysis.
8.2 Valuation of SC-55
This valuation is based on the assumption that Cinco will be the first prospect to be
drilled and, in the success case, it will be followed by Hawkeye. No value is allocated
to the other prospects because there are currently no plans to drill them.
The geological probability of success (GPOS) for Cinco has not been published.
However it is extremely unlikely that BHPB would have taken the decision to farm-in
and drill an $80m well if the GPOS was below 25%. Therefore a GPOS of 25% is
used in the analysis. This is a commitment well and the probability of it being drilled
must be close to 100%, however since no announcement of a rig contract has yet
been made, a probability of the well being drilled of 90% is used. The GPOS
represents the probability of discovering hydrocarbons and does not take into
account whether commercial quantities will be found. For large structures offshore
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Palawan it is reasonable to assume an 85% probability that a discovery will be
commercially developed.
Using the volumetric estimates of recoverable resources and the above probabilities
a current risked value of Cinco of $342m can be calculated, as shown in the table
below.
The GPOS of Hawkeye has been stated by Otto Energy to be 27%. The drilling of
Cinco will provide additional geological data which should reduce the geological risk
of subsequent wells. A conservative GPOS of 27% is therefore used for Hawkeye.
The overall chance of Hawkeye being drilled is 22.5% on the basis that it will only be
drilled if Cinco is a discovery. The risked value of Hawkeye is calculated to be
$140m as shown below.
Overall the current risked value of SC-55 is therefore calculated to be $482m as
shown in the table below.
Table 8.4: Current Valuation of 100% Equity in SC-55
Recoverable Gas
Recoverable Condensate
Recoverable Oil
Gas NPV
Oil/Condensate NPV
Unrisked Asset NPV
Probability of Well Being Drilled
GPOS
Probability of Discovery Being
Commercial
Risked NPV
Units
Cinco
Hawkeye
TCF
MMBBL
MMBBL
$/MCF
$/BBL
$million
%
%
2.10
74
0
0.50
10
1790
90%
25%
0.78
27
204
0.50
10
2703
23%
27%
%
85%
85%
$million
342
140
Total
482
8.3 Valuation of Trans-Asia’s Holding in SC-55
Trans-Asia’s value in SC-55 is made up of two components:
1. Trans-Asia has 6.82% direct equity in SC-55 which is carried through the
drilling of the first two wells by Otto Energy.
2. Trans-Asia also has the option to acquire an additional 5% equity in SC-55. In
2010 Trans-Asia entered into an agreement to sell this option to Frontier
Gasfields and this agreement provides potential future revenue for Trans-Asia.
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The current risked value of Trans-Asia’s direct equity in SC-55 is simply 6.82% of the
overall block value, i.e. $32.9 million.
The unrisked and risked values of the potential payments from Frontier Gasfields Ltd
are shown in the table below:
Table 8.5: Frontier Gasfield’s Payments to Trans-Asia to Retain and Exercise the
Option
Cash to be paid when well spuds
Frontier shares to be provided when well
spuds
Cash to be paid if option is exercised after a
discovery
Total
$million
0.25
Risked
Probability Amount
90%
0.23
0.56
90%
0.50
7.00
22.5%
1.58
7.81
2.30
8.4 Conclusions
The current risked value of Trans-Asia’s direct 6.82% equity in SC-55 is $ 32.9
million.
The current risked value to Trans-Asia of the option agreement with Frontier
Gasfields for SC-55 is $2.3 million.
The combined risked value of Trans-Asia’s interests in SC-55 is therefore $ 35.2
million.
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Figure 8.1: Map Showing Location of SC55 Prospects
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9. Service Contract 69 – East Visayas
9.1 Background
Service Contract 69 was awarded in May 2006. Reprocessing of existing 2D seismic
was followed by acquisition of new 2D and 3D seismic.
760 km of 2D seismic data was acquired in 2010 and indicated the presence of two
sizeable Upper Miocene reef structures, Lampos and Lampos South. These
structures sit immediately adjacent to the Calamangan Trough which is modelled to
generate both oil and gas. Some direct hydrocarbon indicators were evident on the
2D seismic data however it was not clear whether gas or oil was most likely. The
prospects are analogous to the largest discovered field in the Philippines –
Malampaya.
The prospects are located in the Camotes Sea between Northeastern Cebu and
Northwestern Leyte. The islands of Cebu and Leyte host numerous surface oil and gas
seeps which confirm the presence of an active petroleum system in this region. In addition
the prospects are only 40 km from the Villaba -1 well drilled by Ampolex in 1994 which
penetrated a 19-m gas column but was not tested.
To further delineate these prospects, 210 km2 of new 3D seismic was acquired in June 2011.
This new seismic has improved the definition of Lampos and Lampos South and
identified a third smaller prospect, Managau East.
Table 9.1: SC-69 Prospect Details
Water Depth (Metres)
Top Reservoir Depth
(Metres)
Mean Recoverable Oil
(MMBBL)
Mean Recoverable Gas
(BCF)
Lampos
Lampos South
Managau East
730
670
640
1,230
1,300
1,660
62.7
102
24.3
184
299
58.2
Note: The prospects are estimated to contain either the volumes of oil or the
volumes of gas shown above, not both.
An exploration well is estimated to cost around $45m on a dry hole basis and $60m if
a well is fully evaluated and flow tested.
Preliminary economic evaluation suggests that the prospects could be commercially
developed with an FPSO if oil filled, but would be only marginally economic if gas
filled.
At the present time it is understood that the joint venturers are seeking a new partner
to farm-in and fund the drilling of the first exploration well.
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9.2 Uncertainties
In estimating a current value for SC-69 a number of uncertainties have to be addressed.
These are shown in the table below:
Table 9.2: Key Uncertainties
Uncertainty
Will a new partner farm-in to
the block and commit to
drilling an exploration well?
Assumption or
Probability Used
in this Valuation
40%
Basis
No data on the state of the farm-out
process has been provided. A farmout of this nature has to compete with
offerings from all around the world.
What will be the terms of the
farm-in?
Assume 2-for-1
Industry standard terms would be for
the farminee to earn 50% interest in
the Service Contract in return for
paying 100% of the cost of the first
well.
Which well would be drilled
first
Not known but
assume Lampos
South
If the structures have the same
GPOS companies would generally
choose to drill the larger and more
valuable structure first.
GPOS of first exploration well
25%
It is highly unlikely that a farminee
would be secured if the GPOS is less
than 25%.
Probability of a discovery at
the first well being
commercially developed
50%
The prospect could contain oil or gas
and it is considered unlikely that gas
would be commercially developed.
GPOS of second exploration
well
50%
The information gathered during the
drilling of the first well will improve
the probability of success of the
second well.
Probability of a discovery at
the second well being
commercially developed
75%
It is assumed the second well will
only be drilled if the results from the
first well indicate that the second well
is likely to be commercial.
Trans-Asia already has an agreement in place with Otto Energy whereby Otto Energy
will pay all of Trans-Asia’s costs relating to the drilling of the first exploration well on
the block. Therefore Trans-Asia will not need to participate in any farm-out and will
retain its current 6% equity in the block. Trans-Asia will have to pay its own way if a
second well is drilled.
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9.3 Valuation
On the basis that a farm-in partner has not yet been secured and the JV has therefore not
committed to drilling an exploration well, the value of Trans-Asia’s 6% equity in SC-69 is
calculated as shown below:
Table 9.3: SC69 Current Valuation
First Well
GPOS for first well
40%
25%
50%
5%
Lampos South Recoverable Oil
Current risked value of a discovery at Lampos South
102
12.5
1275
64
MM BBL
$/BBL
$ million
$ million
Cost of exploration well (dry hole basis)
Risked cost of exploration well to current JV partners
Overall risked value of Lampos South to current JV
45
0
64
$ million
$ million
$ million
Share of value retained by Trans-Asia
Current risked value of TrasAsia's share of Lampos
South
6%
3.8
$ million
Second Well
5%
50%
75%
2%
Lampos Recoverable Oil
63
12.5
787.5
15
MM BBL
$/BBL
$ million
$ million
Cost of exploration well
Risked cost of exploration well to JV
Overall risked value of Lampos South to JV
Current risked value of Trans-Asia's share of Lampos
45
2
13
6.0%
1
$ million
$ million
$ million
4.6
$ million
Current Risked Value of Trans-Asia's Equity in SC69
$ million
If a farminee is secured and the JV commits to drilling an exploration well, the value of TransAsia’s 6% equity in SC-69 would increase as shown below:
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Table 9.4: SC69 Valuation After a Farm-in Pertner is Secured
First Well
GPOS for first well
100%
25%
50%
13%
Lampos South Recoverable Oil
102
12.5
1275
159
MM BBL
$/BBL
$ million
$ million
Risked cost of exploration well to current JV partners
Overall risked value of Lampos South to current JV
45
0
159
$ million
$ million
$ million
Current risked value of TrasAsia's share of Lampos
South
6%
9.6
$ million
Second Well
13%
50%
75%
5%
Lampos Recoverable Oil
63
12.5
787.5
37
MM BBL
$/BBL
$ million
$ million
Risked cost of exploration well to JV
Overall risked value of Lampos South to JV
Current risked value of Trans-Asia's share of Lampos
45
6
31
6.0%
2
$ million
$ million
$ million
Potential Future Risked Value of Trans-Asia's Equity
in SC-69
11.4
$ million
$ million
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9.4 Conclusions
The current risked value of Trans-Asia’s 6% equity in SC-69 is $4.6 million.
If a farm-in partner is secured and the JV commits to drilling an exploration well, the risked
value of Trans-Asia’s 6% equity in SC-69 would increase to circa $11.4m prior to drilling.
Figure 9.1: Map of SC-69 Showing Lampos, Lampos South and East Managao
Prospects
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10. Personnel
The report has been prepared by add ips company principal, Mr Brad Girdwood, and
principal consultant Mr Rob Marshall.
Brad Girdwood - Operations Manager
•
•
•
•
•
•
21 years senior technical and management experience in international
upstream oil and gas sector.
Joined IPS in 2007.
Drilling Manager for ARC Energy in Perth immediately prior to joining IPS.
Project Manager for Theiss (CSM) and Queensland Gas Company. GM
Surtron Technologies, Directional drilling coordinator & engineer.
BEng (Mechanical) from Curtin, Western Australia.
Member Society of Petroleum Engineers (SPE) since 1992.
Rob Marshall – Principal Consultant
•
•
•
•
•
•
•
•
•
•
30 years senior technical and management experience in international
upstream oil and gas sector.
Joined IPS in 2010.
Founding director Huntriss Energy Pty Ltd 2008.
Director of Equity Business, Advanced Well Technologies 2007/08
Group Manager of Developments, Country Manager and Engineering
Manager over 10 years with Premier Oil Plc, London and international
locations.
Operations Team Leader, Ampolex (later Mobil) 1993/97
Consultant Petroleum Engineer 1984/92 numerous clients/projects globally.
BSc (Hon) Applied Chemistry, Kingston Polytechnic, UK. MEng Petroleum
Engineering, Heriot Watt University, UK.
Member Australian Institute of Company Directors.
Member Society of Petroleum Engineers (SPE).
11. add ips and add energy
11.1 Capabilities and Services
add ips, together with its sister companies in Australia add lucid and add isrm,
comprises a team of more than 100 drilling, completions, and HSSEQ professionals,
some being permanent employees whilst others are long term consultants. As an
integrated project management consultancy, we have a depth of expertise that is
difficult to match outside major operating companies. Essentially we are able to
provide a complete outsourced drilling and well construction project management
solution to our clients.
The principal members of the management team each have in excess of 20 years
experience in drilling and completion engineering, HSSEQ, operations, and
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management, gained with both independents and majors from all over the world. We
combine this experience with that of our staff and long-term associate consultants
who add considerable wealth in onsite and office-based engineering and operations
supervision.
Our services can broadly be categorized as follows:
 Conceptual evaluation of field development and well management options;
 Development of well delivery processes and management systems suited to
well operations;
 Development and implementation of HSSEQ management systems;
 Well engineering, design, planning, contracting and drilling project
management;
 Reservoir engineering;
 Completions engineering and production technology;
 Well servicing and well interventions;
 Well engineering audits and peer reviews;
 Unplanned event investigation;
 Performance monitoring and benchmarking;
 Commercial support, including due diligence and valuations.
We are able to provide solutions tailored to the specific requirements of our clients.
From full project management through discrete engineering studies to provision of
individual consultants and well engineering processes, we can provide an appropriate
response.
add ips is not a personnel agency, but offers a team-based solution to our clients
which, together with client in-house resources and external service providers, allows
the delivery of predictable and high quality results.
11.2 The add energy group as
add energy is a leading provider of solutions and competence to the oil and gas
sector on the Norwegian Continental Shelf and an emerging player in a growing
number of international markets. Its areas of expertise cover the following main
areas:
 Well engineering & management
 Drilling engineering, flow analyses and well kill operations/incident support
(playing a central role in the recent Montara and Macondo well kill
operations).
 Environmental control & management
 Asset integrity & maintenance management
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 Process & Simulator operations
 Training
Add Energy is headquartered in Stavanger with additional offices in Oslo, Aberdeen,
Houston, Muscat, Perth, Singapore and Melbourne.
For more information about our companies and our capabilities please refer to the
add energy group website at www.addenergygroup.com
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Transcription

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